The Prototype Model of Defense Procurement
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The modern economic theory of procurement1 has added significantly to our understanding of the forces that affect the efficiency with which large-scale acquisitions are made. Nonetheless, this theory, which is intended generally to describe the acquisition of items such as major weapons systems, electricity generation plants, and manufacturing facilities, contains little detail about any specific acquisition environment. Consequently, the theory must be modified in order to apply its lessons in any particular context. This paper is an attempt to show how the theory might be applied to the acquisition of major weapons systems by the Department of Defense by developing a simple prototype model of defense acquisition. The prototype model, which is intended to capture some of the specific features of the defense acquisition process,2 illustrates the questions that any analysis of defense acquisition must answer. Although the analysis provides some tentative answers to these questions, a more elaborate model is clearly needed to address them more definitively.
KeywordsMarginal Cost Demand Curve Expected Profit Cost Overrun Alternative Supplier
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