The Effect of Changes in Compensation on a Pilot's Decision to Leave the Air Force
AIR FORCE INST OF TECH WRIGHT-PATTERSONAFB OH
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The effects of changes in military compensation on the decision to leave the Air Force are analyzed for a sample of Air Force pilots. Three models of departure behavior are compared the Annualized Cost of Leaving ACOL model, which is frequently used by the Department of Defense, a dynamic programming model based on the work of Daula and Moffitt, and the option value model developed by Stock and Wise. The option value model is shown to produce predictions of departure patterns that are far more accurate than the ACOL model while being as accurate, but easier to estimate than, the dynamic programming model. Aviator Continuation Pay ACP was introduced in 1989 to improve pilot retention in the Air Force, and was justified in part by retention effects predicted with ACOL models. The option value model predicts some improvement in pilot retention with ACP, but less than predicted by the ACOL model. This is closer to the actual effect. Several variations of the military pension are simulated, and the effects of the 1986 pension change are predicted using the ACOL model and the option value model. Option value model analysis indicates that far more pilots in the early stages of their careers will be induced to leave the military because of the pension change than predicted by the ACOL model. This could have important implications for future military force management.
- Economics and Cost Analysis