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Measuring the Effectiveness of Competition in Defense Procurement: A Survey

James J. Anton and Dennis A. Yao

Journal of Policy Analysis and Management 9(1): 60-79, 1990

Abstract: This article surveys the empirical literature that has attempted to measure the effects of competition in defense procurement. Its focus is on the conceptual underpinnings of the empirical models rather than on the technical aspects of the estimation procedures. While the empirical studies provide some valuable insight, the studies are flawed because they assume an implicit model of the procurement environment that is inconsistent with reasonable economic behavior on the part of defense contractors and seems to be contradicted by the evidence. In general, the predictive power of the empirical models is also limited by a program-by-program estimation approach in which only a handful of data points are available to estimate two or more parameters. These empirical models could be improved by the use of structural models that assume reasonable economic behavior and provide a theoretical basis for cross-program analyses.