An Analysis of Manufacturers´ R&D Decision-Making in Defense Procurement

This paper is intended to study the manufacturers´ decision-making for R&D investment in defense procurement. On the basis of constructing the model of R&D investment scale adjustment of defense procurement, this paper researches the equilibrium of manufacturers´ R&D investment decision-making in defense procurement. The influence of valuation of monopolistic contract and differences among manufacturers´ abilities on investment is mainly discussed. It comes to the conclusion that: under certain conditions, manufacturers´ investment equilibrium of R&D projects is identical to the government expectation, however, if the differences in valuation of monopolistic contracts and manufacturers´ abilities exist, the investment equilibrium will deviate from the government expectation. Therefore, in the practice of defense procurement R&D, the government must keep manufacturers´ anticipation about the monopolistic contact being consistent with government´s; and at the same time, setting basic admission criterion to enable manufactures´ ability well-matched, and in this way, the government could induce the manufacturers´ investment decisions to the investment equilibrium that it desired.