A Reduced Form Model of Cost Growth of Major Defense Acquisition Programs

Abstract

This paper considers a problem posed implicitly by comparing a basic assumption typically used in quantitative analyses of cost growth of major defense acquisition programs (MDAPs) with that used in David L. McNicol, Acquisition Policy, Cost Growth, and Cancellations of Major Defense Acquisition Programs, IDA Report R 8396, September 2018 (hereafter Acquisition Policy). An analysis in the traditional mold mainly uses program characteristics (such as the maturity of key technologies) to explain cost growth. Acquisition Policy instead uses a categorical variable for funding climate, categorical variables marking major changes in acquisition policy, and measures of program duration. At first glance, these two approaches seem to adopt radically different theories of the causes of cost growth in MDAPs. In fact, they do not. The paper demonstrates this by deriving the model of Acquisition Policy from a more complete model in which the traditional model is a structural equation. In terms of the more complete model, that of Acquisition Policy is the reduced form representation of the traditional model.