A Research Of Incentive Problems In Defense Procurement

As the relation of supply and demand of our nation's defense procurement has been reached to the era of market economy, the research of how to enhance the efficiency of the outlay of defense procurement has been very important. On one hand, the continuous and stable development of corporations is due to the contracts and profit they get when corporations are in charge of their runnings and profits on their own. On the other hand, enhancing the efficiency of the outlay of defense procurement needs the decline of profit and the stimulation of corporations to do their best to reduce costs of products. Therefore, the designing of incentive mechanisms that are adapting to our nation has been of great sense of theories and practices.This thesis puts its emphasis on the application of incentive regulation in defense procurement as incentive regulation theory and game theory have been introduced. By analyzing the current situation and characters of defense procurement, it uses theories of incentive regulation to study problems which exist in the three phases of defense procurement.Firstly, the thesis studies the problem of corporation-inducement in defense procurement through the construction of a game model of corporations'strategies. The conclusion shows that setting an appropriate entering criterion, putting admission-authentication into practice can not only induce first-class corporations into the field of defense production but also kick unefficient corporations out of it.Secondly, the thesis discusses the reimbursement strategy of defense R&D that can be applied in defense items. The result makes it clear that a ratio of reimbursement of defense R&D can reduce contractors'risk. The thesis analyzes the relations between R&D-investment, profit of defense item, number of corporations and the ratio of reimbursement of defense R&D-investment by setting up a model on the theories of incentive theory after analyzing the defects of defense procurement in domestic and abroad. The conclusion shows that the ratio of reimbursement of R&D-investment can affect the scale of contractors'R&D-investment, control contractors'excessive profit. The result also shows that keeping two equivalent corporations in every field is the best.Finally, it points out that as the speciality of defense contracts and the asymmetry of information, traditional method of contract designing and the mechanism of self-selection are not feasible in the field. Through designing a contract design mechanism called"Type-Separation", the army can separate contractor's production contract into different kinds and offer them cost reimbursement contracts or cost sharing contracts to make the expectation cost of contracts reach to its minimum in condition that the army has no awareness of the type of productive functions of manufacturers.The thesis brings forward questions that need to be further studied in the end.