Economic Incentives and the Defense Procurement Process

Rogerson, William P.

doi:10.1257/jep.8.4.65

Cited by 144 publications

(80 citation statements)

References 15 publications

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“…It is reasonable to think that information systems used to monitor terrorist activities, administer Social Security payments, and coordinate the health care of military veterans could have welfare impacts that far exceed their dollar costs. 20 See Rogerson (1994) for a discussion of the incentives facing government contractors. 21 These projects are a $45.5 billion project at the Department of Defense and a $19.5 billion project at the Department of Homeland Security.…”

Section: B Data and Summary Statisticsmentioning

confidence: 99%

Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement

Liebman

Mahoney

2017

American Economic Review

113

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Many organizations have budgets that expire at the end of the fiscal year and may face incentives to rush to spend resources on low-qual-Many organizations have budgets that expire at the end of the fiscal year. In the United States, most budget authority provided to federal government agencies for discretionary spending requires the agencies to obligate funds by the end of the fiscal year or return the funds to the Treasury; state and municipal agencies typically face similar constraints (McPherson 2007; Jones 2005; GAO 2004). 1 This "use-it-or-lose-it" feature of time-limited budget authority has the potential to result in low-value spending, since the opportunity cost to organizations of spending about-to-expire funds is effectively zero. 2 Exacerbating this problem is the incentive to build up a rainy day fund over the front end of the budget cycle. Most organizations are de facto liquidity constrained, facing at the very least a high cost of acquiring mid-cycle budget authority. When future spending demands are uncertain, 1 At the end of the federal fiscal year, unobligated balances cease to be available for the purpose of incurring new obligations. They sit in an expired account for five years in case adjustments are needed to account accurately for the cost of obligations incurred during the fiscal year for which the funds were originally appropriated. At the end of the five years, the funds revert to the Treasury general fund.2 In some settings, unspent funding may not only represent a lost opportunity but can also signal a lack of need to budget-setters, decreasing funding in future budget cycles (Laffont and Tirole 1986; Lee and Johnson 1998; Jones 2005). When current spending is explicitly used as the baseline in setting the following year's budget, this signaling effect is magnified.

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Section: B Data and Summary Statisticsmentioning

confidence: 99%

Do Expiring Budgets Lead to Wasteful Year-End Spending? Evidence from Federal Procurement

Liebman

Mahoney

2017

American Economic Review

113

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“…It is possible to formulate an econometric model based on Rogerson's (1994) framework, assuming a profit-maximizing contractor with a notional pool of cost-reducing investment options. We can also combine this model with a fixed-cost model, as we did with the learning-and-forgetting model.…”

Section: Regulatory Lagmentioning

confidence: 99%

Analytical Tools for Affordability Analysis

Tate¹

2015

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“…In market economies defense markets are generally thought to have a potential for hold-up problems (Rogerson 1994), with the advantage to the buyer. Defense contractors must acquire specialized research and production assets in order to produce goods for which there is only a single purchaser; if the relationship ends or breaks down these assets will be less valuable in their best alternative use.…”

Section: The Hold-up Problem In the Soviet Defense Marketmentioning

confidence: 99%