Government Subsidies to Private Military R&D Investment: Dod's Ir&D Policy

17 Pages Posted: 3 May 2004 Last revised: 12 Jul 2010

See all articles by Frank R. Lichtenberg

Frank R. Lichtenberg

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: October 1988

Abstract

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.

Suggested Citation

Lichtenberg, Frank R., Government Subsidies to Private Military R&D Investment: Dod's Ir&D Policy (October 1988). NBER Working Paper No. w2745, Available at SSRN: https://ssrn.com/abstract=287735

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