Citation

Liston-Heyes C. Def. Peace Econ. 1995; 6(1): 1-11.

Copyright

(Copyright © 1995, Informa - Taylor and Francis Group)

DOI

10.1080/10430719508404808

PMID

unavailable

Abstract

In this paper, we examine how defence procurement policy should be adapted to take account of a particular type of informational asymmetry that exists between a government and a defence contractor. For any particular project, a firm must choose the comprehensiveness of the information available to its decision-makers which they use to coordinate construction activities. However, because the procurement agency has access to all project-relevant data held by the firm, when it chooses how thorough its records are to be, the firm simultaneously determines its 'cost transparency' to the agency. Since this degree of transparency affects its ability to extract rents from the government, the firm's choice of management input will generally be biased. Policy implications are considered.