Conflict environments exacerbate an incentive dilemma between employers and private military and security companies (PMSCs). PMSCs seek to maximize profits, but employers seek to minimize expenses and maximize services. We argue that PMSCs are influenced by two complementary economic factors: contract structure and intra-sector competition. Contract structures are set by employers and establish compensation constraints and intra-sector competition identifies potential replacements. Both impact service delivery. We find that PMSCs with contract structures that lack performance incentives, even in the presence of competition, increase the likelihood of violence in Iraq. PMSCs that lacked intra-sector competition had a similar but smaller effect.
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