Accession Number : ADA253965


Title :   Profit Regulation of Defense and Prizes for Innovation


Corporate Author : RAND CORP SANTA MONICA CA


Personal Author(s) : Rogerson, William P


Full Text : https://apps.dtic.mil/dtic/tr/fulltext/u2/a253965.pdf


Report Date : Jan 1992


Pagination or Media Count : 68


Abstract : The defense sector is subject to a form of cost-based economic regulation, just as public utilities are. A set of regulations that are as detailed, all-encompassing, and arcane as any that can be found in other regulated sectors determines the prices that defense contractors will receiver for their products. These regulations are often referred to as the Department of Defense (DoD) profit policy. Although economists have made great strides in analyzing the nature of the regulatory problem in several industries, little attention has been devoted to the defense sector. The goal of this report is to describe and empirically investigate an extremely simple theory that captures an important aspect of the nature of the regulatory problem in defense contracting. The theory describes a critical difference between the regulatory problems in defense and public utilities and therefore suggests why different rules and institutions might be appropriate in each case. Furthermore, it yields several implications regarding how an optimal regulatory policy should be structured and sheds light on current policy debates over DoD profit policy. A large part of the document is devoted to empirically verifying that the incentives posited by the theory exist and are large.


Descriptors :   *DEPARTMENT OF DEFENSE , *COSTS , ECONOMICS , COST ANALYSIS


Subject Categories : Economics and Cost Analysis
      Personnel Management and Labor Relations
      Military Forces and Organizations


Distribution Statement : APPROVED FOR PUBLIC RELEASE