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Use it or lose it: On the incentives to spend annual defence operating budgets

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  • W.J. Hurley
  • Jack Brimberg
  • Brent Fisher

Abstract

In most western countries, there is a strong incentive for defence department budget-holders to expend all of the funds they are authorized to spend in a fiscal year. In this paper, we question whether this emphasis makes sense. We develop a model of a defence department's operating expenditure assuming a fixed level of funding for a year and uncertain costs. The results of the model suggest that the incentive for departmental managers to expend all authorized funds is inefficient. We explore the implications of the model for the Department of National Defence (DND) in Canada in light of the recent criticism of DND lapsed funding by the Auditor-General of Canada.

Suggested Citation

  • W.J. Hurley & Jack Brimberg & Brent Fisher, 2014. "Use it or lose it: On the incentives to spend annual defence operating budgets," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(4), pages 401-413, August.
    • Handle: RePEc:taf:defpea:v:25:y:2014:i:4:p:401-413
    DOI: 10.1080/10242694.2013.780758
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    References listed on IDEAS

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    1. Rogerson, William P., 1995. "Incentive models of the defense procurement process," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 12, pages 309-346, Elsevier.
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    Cited by:

    1. Christoph Siemroth, 2022. "Dezemberfieber senken: Vermeidung von verschwenderischen Jahresendausgaben [Reducing “Dezemberfieber”: Wasteful Year-End Spending and a Solution]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 102(6), pages 461-464, June.
    2. Siemroth, Christoph, 2022. "Ending Wasteful Year-End Spending: On Optimal Budget Rules in Organizations," Economics Discussion Papers 32231, University of Essex, Department of Economics.
    3. Stuart Baumann, 2019. "Putting It Off for Later: Procrastination and End of Fiscal Year Spending Spikes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 706-735, April.
    4. Marcus Matthias Keupp, 2021. "Institutions and Armed Forces," Springer Books, in: Defense Economics, chapter 0, pages 23-65, Springer.

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