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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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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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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    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    2. Lichtenberg, Frank R, 1988. "The Private R&D Investment Response to Federal Design and Technical Competitions," American Economic Review, American Economic Association, vol. 78(3), pages 550-559, June.
    3. Tirole, Jean, 1986. "Procurement and Renegotiation," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 235-259, April.
    4. A W. Marshall & W H. Meckling, 1962. "Predictability of the Costs, Time, and Success of Development," NBER Chapters,in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 461-476 National Bureau of Economic Research, Inc.
    5. William P. Rogerson, 1988. "Profit Regulation of Defense Contractors and Prizes for Innovation : Theory and Evidence," Discussion Papers 759, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    6. Baron, David P & Besanko, David, 1988. " Monitoring of Performance in Organizational Contracting: The Case of Defense Procurement," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 329-356.
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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, vol. 64(2), pages 731-751, June.
    2. 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.
    3. Yongmin Chen & Ron Smith, 2001. "Equilibrium Cost Overruns," Annals of Economics and Finance, Society for AEF, vol. 2(2), pages 401-414, November.

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