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Rethinking the Buy vs. Lease Decision

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In years past, the DoD has considered leasing major equipment from defense industry firms in order to acquire needed capability quickly and without the upfront expense. A number of studies have analyzed the costs and benefits of leasing as opposed to purchasing specific military equipment e.g., Engin, 1989 Lebo Scott, 2009. Some of these lease arrangements, such as the Navy s long-term lease of tanker ships between 1983 and 2011, proved to be cost effective, or at least cost neutral, depending on the evaluation criteria used Haslam, Koenig, Mitchell, 2004 Miguel, Shank, Summers, 2005. Nevertheless, the ensuing congressional backlash led to the passage of new regulations in the early 1980s, including the submission of a detailed justification for lease versus purchase, which has effectively restricted the use of long-term leases. Support for leasing major equipment continues to decline. Recently, for example, the Coast Guard considered leasing polar icebreakers to supplement its two-ship fleet, one of which has exceeded its 30-year service life GAO, 2011. In the end, Stephen L. Caldwell, Director of Homeland Security and Justice, noted that the lack of existing vessels capable of meeting Coast Guard requirements limited the availability of leasing options. He also stated that an initial cost-benefit analysis of one type of available leasing option suggested that it may ultimately be more costly to the Coast Guard over the 30-year icebreaker lifespan O Rourke, 2012, p. 30.

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  • Economics and Cost Analysis

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