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 July 1989
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.

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Document Object Identifier (DOI): 10.3386/w3025

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

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