Citation

Bos D. Def. Peace Econ. 1996; 7(4): 279-296.

Copyright

(Copyright © 1996, Informa - Taylor and Francis Group)

DOI

10.1080/10430719608404858

PMID

unavailable

Abstract

Procurement of advanced technology defence equipment requires appropriate contractual arrangements to achieve efficient R&D investments. This paper analyses the optimality of target-cost and fixed price contracts and shows that target-cost pricing can achieve a first best where both fixed-price contracts and cost reimbursement fail to do so. The main message of this paper is that in incomplete contracting optimality may sometimes be achieved by arrangements which combine several formulae which, individually, would fail to achieve efficiency.