The industrial structure of National Defence and transaction costs

The relationship between National Interests, National Strategy and National Defence strategy is reviewed. The key elements of transaction cost economics are described and a model of National Defence as an integrated set of industries is described. Changes in the transactions cost environment since the collapse of the Soviet Union are analyzed with respect to their effects on the governance structure of National Defence. At each transactional location - final goods, primary inputs, and intermediate goods - the environmental changes are assessed with respect to governance costs. We find that at each location there exist relative reductions in the governance costs of hybrid forms of organization and give examples. The impetus for continued change in the governance structure of the defence sector is certain. These forces have not been appreciated in terms of their interactions with National Interests and National Strategy, suggesting an important feedback loop from the implementation of Defence Strategy to National Interests.