NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Government Subsidies to Private Military R&D Investment: DOD's IR&D Policy

Frank R. Lichtenberg

NBER Working Paper No. 2745 (Also Reprint No. r1415)
Issued in October 1988
NBER Program(s):   PR   PE

A relatively obscure defense procurement policy establishes a large subsidy to private military R&D investment. On the surface, it appears that the marginal subsidy to such investment is zero, but this is only true in the short run. Due to DOD's policy of allowable-cost determination, the long-run subsidy is substantial. It is much larger, in fact, than the subsidy provided by the R&D Tax Credit enacted in 1981. I calculate the subsidy by estimating an econometric model using contractor-level data from the Defense Contract Audit Agency. This subsidy may have an important influence on the amount and character of privately financed innovation in the U.S.

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Document Object Identifier (DOI): 10.3386/w2745

Published: Defense Economics, Vol. 1, pp. 149-158, (1990).

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