Defence Acquisition and Procurement

Introduction

The acquisition and procurement of major weapons systems is fraught with difficulties. They tend to be delivered late, over budget and unable to meet requirements. This Element provides an economic analysis of why this happens.

Market Dynamics

Market structure, demand by the military and supply by the arms firms, shapes the conduct of the agents and generates the poor performance observed.

Challenges Faced by the Military

The military are trying to counter an evolving threat, subject to a budget constraint, high R&D costs and new technologies.

Principal-Agent Problems

The interaction between a government made up of warring tribes and arms firms with considerable market and political power is further complicated by a set of what economists call ''principal-agent'' problems, which are examined.

Reform Efforts and Their Limitations

While the poor performance has prompted many countries to propose reforms, the difficulty of the task and the institutional incentives faced by the actors mean that the reforms rarely solve the problem.