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How elastic is the government's demand for weapons?

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  • Lichtenberg, Frank R.

Abstract

We attempt to make inferences about the elasticity of the government's demand for specific weapons by analyzing the statistical relationship between quantity and cost revisions across the population of major weapon systems, using data contained in the Pentagon's Selected Acquisition Reports. The cost revisions are due in part to the arrival of technological information generated in the course of research and development. When we standardize the data by program base year, we find that the elasticity of demand is .55, and is significantly different from both zero and unity. Thus, the governments demand for specific weapons is inelastic, but not perfectly inelastic. The estimates also imply that weapons acquisition is characterized by increasing returns: the mean and median values of the elasticity of total cost with respect to quantity are .78 and .72, respectively.
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Suggested Citation

  • Lichtenberg, Frank R., 1989. "How elastic is the government's demand for weapons?," Journal of Public Economics, Elsevier, vol. 40(1), pages 57-78, October.
    • Handle: RePEc:eee:pubeco:v:40:y:1989:i:1:p:57-78
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    Cited by:

    1. Susan J. Guthrie & Hines, James R. Jr., 2011. "U.S. DEFENSE CONTRACTS DURING the TAX EXPENDITURE BATTLES of the 1980s," National Tax Journal, National Tax Association;National Tax Journal, vol. 64(2), pages 731-751, June.
    2. Yongmin Chen & Ron Smith, 2001. "Equilibrium Cost Overruns," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 401-414, November.
    3. Luechinger, Simon & Moser, Christoph, 2014. "The value of the revolving door: Political appointees and the stock market," Journal of Public Economics, Elsevier, vol. 119(C), pages 93-107.

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