Government Subsidies to Private Military R&D Investment: DOD's IR&D Policy
NBER Working Paper No. 2745 (Also Reprint No. r1415)
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.
Document Object Identifier (DOI): 10.3386/w2745
Published: Defense Economics, Vol. 1, pp. 149-158, (1990).
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