This paper describes some of the insights that the economic theory of incentives can contribute to defense procurement policy analysis. It describes the underlying incentive problems that shape the defense procurement problem, the nature of current institutions and how they affect actors'...

This paper considers the profit-maximization problem of a firm that must make sunk investments in long-lived assets to produce output. It is shown that if per-period accounting income is calculated using a simple and natural allocation rule for investment, called the relative replacement cost...

This article compares alternative liability rules for allocating losses from defective products when consumers underestimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability is first-best. If market power is...

This article considers a situation where the buyer or the seller of a good must engage in expenditures on specific capital before the exchange either to prepare to use the product or to prepare to sell it. It is assumed that postbreach bargaining is possible and carried out in a cooperative...

The theory of rent-seeking is that monopoly profits attract resources directed into efforts to obtain these profits and that the opportunity costs of these resources are a social cost of monopoly. This article shows that monopoly rents remain untransformed to the extent that firms are...

Economic theorists have devoted considerable attention to analyzing models of closely related incentive contracting problems that arise in the study of public procurement, private procurement, regulation, the theory of the firm, the theory of organizations, and managerial compensation. The...