NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

How Elastic is the Government's Demand for Weapons?

Frank R. Lichtenberg

NBER Working Paper No. 3025 (Also Reprint No. r1388)*
Issued in April 1990
NBER Program(s):   PR

We attempt to make inferences about the elasticity of the government's

demand for specific weapons by analyzing the statistical relationship

between quantity and cost revisions across the population of major

weapon systems, using data contained in the Pentagon's Selected Acquisition

Reports. The cost revisions are due in part to the arrival of

technological information generated in the course of research and development.

When we standardize the data by program base year, we find that

the elasticity of demand is .55, and is significantly different from both

zero and unity. Thus, the governments demand for specific weapons is

inelastic, but not perfectly inelastic. The estimates also imply that

weapons acquisition is characterized by increasing returns: the mean and

median values of the elasticity of total cost with respect to quantity

are .78 and .72, respectively.

*Published: Journal of Public Economics, Vol. 40, pp. 57-78, (1989).

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