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Measuring the effectiveness of competition in defense procurement: A survey of the empirical literature

Author

Listed:
  • James J. Anton

    (Assistant Professor of Economics at the State University of New York, Stony Brook)

  • Dennis A. Yao

    (Assistant Professor of Public Policy and management at the Wharton School, University of Pennsylvania)

Abstract

This article surveys the empirical literature that has attempted to measure the effects of competition in defense procurement. Its focus is on the conceptual underpinnings of the empirical models rather than on the technical aspects of the estimation procedures. While the empirical studies provide some valuable insight, the studies are flawed because they assume an implicit model of the procurement environment that is inconsistent with reasonable economic behavior on the part of defense contractors and seems to be contradicted by the evidence. In general, the predictive power of the empirical models is also limited by a program-by-program estimation approach in which only a handful of data points are available to estimate two or more parameters. These empirical models could be improved by the use of structural models that assume reasonable economic behavior and provide a theoretical basis for cross-program analyses.

Suggested Citation

  • James J. Anton & Dennis A. Yao, 1990. "Measuring the effectiveness of competition in defense procurement: A survey of the empirical literature," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(1), pages 60-79.
  • Handle: RePEc:wly:jpamgt:v:9:y:1990:i:1:p:60-79
    DOI: 10.2307/3325113
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    References listed on IDEAS

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    1. Willis R. Greer, Jr. & Shu S. Liao, 1986. "An Analysis of Risk and Return in the Defense Market: Its Impact on Weapon System Competition," Management Science, INFORMS, vol. 32(10), pages 1259-1273, October.
    2. Joel S. Demski & David E.M. Sappington & Pablo T. Spiller, 1987. "Managing Supplier Switching," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 77-97, Spring.
    3. William B. Burnett, 1987. "Competition in the weapons acquisition process: The case of U.S. warplanes," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 7(1), pages 17-39.
    4. Clarke, Frank H & Darrough, Masako N & Heineke, John M, 1982. "Optimal Pricing Policy in the Presence of Experience Effects," The Journal of Business, University of Chicago Press, vol. 55(4), pages 517-530, October.
    5. Rob, Rafael, 1986. "The Design of Procurement Contracts," American Economic Review, American Economic Association, vol. 76(3), pages 378-389, June.
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    Cited by:

    1. Jose Alcalde & Matthias Dahm, 2016. "Proportional payoffs in legislative bargaining with weighted voting: a characterization," Discussion Papers 2016-03, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    2. Christian Terwiesch & Christoph H. Loch, 2004. "Collaborative Prototyping and the Pricing of Custom-Designed Products," Management Science, INFORMS, vol. 50(2), pages 145-158, February.
    3. David R. King & John D. Driessnack, 2007. "Analysis Of Competition In The Defense Industrial Base: An F-22 Case Study," Contemporary Economic Policy, Western Economic Association International, vol. 25(1), pages 57-66, January.
    4. William E. Kovacic & Dennis E. Smallwood, 1994. "Competition Policy, Rivalries, and Defense Industry Consolidation," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 91-110, Fall.
    5. Marc Guyot & Radu Vranceanu, 1997. "Quelle réglementation pour le secteur de la Défense : l'expérience américaine," Revue Française d'Économie, Programme National Persée, vol. 12(3), pages 167-193.
    6. Kozloff, Keith & Taff, Steven J., 1990. "Perspectives On Competitive Bidding: Retirement Of Environmentally Sensitive Farmland," Staff Papers 13822, University of Minnesota, Department of Applied Economics.
    7. Rajeev K. Goel, 1999. "On contracting for uncertain R&D," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 20(2), pages 99-106.
    8. Biglaiser, Gary & Vettas, Nikolaos, 2004. "Dynamic Price Competition with Capacity Constraints and Strategic Buyers," CEPR Discussion Papers 4315, C.E.P.R. Discussion Papers.
    9. William P. Rogerson, 1994. "Economic Incentives and the Defense Procurement Process," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 65-90, Fall.
    10. Alcalde, Jose & Dahm, Mathias, 2016. "Dual Sourcing with Price Discovery," QM&ET Working Papers 16-1, University of Alicante, D. Quantitative Methods and Economic Theory.
    11. Thomas P. Lyon, 2000. "Competition and Technological Complexity in Procurement: An Empirical Study of Dual Sourcing," Econometric Society World Congress 2000 Contributed Papers 0420, Econometric Society.
    12. Michael Ian Cragg, 1995. "Performance Incentives in Government Subcontracting: Evidence from the Job Training Partnership Act (JTPA)," Labor and Demography 9507001, EconWPA.

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