Applying Insights from Transaction Cost Economics to Improve Cost Estimates for Public Sector Purchases: The Case of U.S. Military Acquisition

ABSTRACT

This article uses Transaction Cost Economics (TCE) to help characterize, explain, and ultimately reduce the cost growth that plagues many of today's major investments in military capabilities. There is mounting evidence of a systematic bias in initial cost estimates of new weapon systems purchased by the U.S. military. Unrealistically low cost estimates result in cost overruns. Fixing cost overruns can substantially impact public budgets and military readiness. Cost estimates serve a dual function: first, as an integral part of the decision-making process to evaluate military purchases/investments, and second, as a baseline for future defense budgets. In the first case, underestimating costs can result in too many new weapon program starts and excessive investments in those systems. In the second case, unrealistically low cost estimates result in overly optimistic budgets. Budgets planned on the basis of optimistic cost estimates create the illusion of more resources available than actually exist. Two factors are often blamed for unrealistically low cost estimates: bad incentives (psychological and political-economic explanations), and bad forecasts (methodological explanations). While briefly exploring the former, the focus of this study is on cost estimating methodology. Conventional public cost estimating techniques focus on the production costs of public purchases (input costs, learning curves, economies of scale and scope, etc.). The goal of this article is to improve cost estimates by expanding conventional cost estimating methodology to include TCE considerations. The primary insight of TCE is that correctly forecasting economic production costs of government purchases or acquisitions is necessary, but not sufficient. TCE emphasizes another set of costs—coordination and motivation costs (search and information costs; decision, contracting, and incentive costs; measurement, monitoring, and enforcement costs, etc.). This study encourages public officials and cost analysts to capture these costs and to understand key characteristics of public-private transactions (uncertainty, complexity, frequency, asset specificity, and market contestability) to generate more complete and reliable cost estimates and improve public sector purchases.     

Sickle Cell Trait as a Contributory Cause of Death in Natural Disease

Sickle cell trait (SCT) affects 300 million people globally, and awareness is growing that SCT is not an entirely benign condition; however, most reported cases have been non‐natural deaths. Autopsy records from the Baylor University Medical Center (BUMC) in Dallas, Texas, contained seven natural deaths from January 2007 to October 2013 in which micro‐occlusive sickling was identified at autopsy and SCT confirmed by postmortem hemoglobin fractionation. Sickle crisis was never diagnosed clinically. These cases illustrate the importance of red cell morphology in autopsy material. When sickling is suspected, hemoglobin fractionation should be performed. If confirmed, SCT should be listed as an autopsy finding and the severity and distribution of sickling documented. Extensive micro‐occlusive sickling should be considered contributory to death; however, its relative importance depends on all facts of the case. Accurate reporting should facilitate further research and the development of evidence‐based preventative and supportive strategies for these patients.     

Perspectives on China’s Reforms

<正>The concept of the"Four Comprehensives"—an ideological framework that should guide the next steps of reforming Chinese economy and institutions—goes beyond political discourse.These new guiding mottos summarize a commitment to deepening the ongoing process of transformation carried on in the country Economic transformation The Chinese economy and its institutions are undergoing large-scale reforms aimed at creating a new development model,which shall be increasingly based on domestic consumption and innovation,instead of its past reliance on exports and huge investment in infrastructure.One of the most significant impacts of these changes will be the expansion of the already booming middle class in China,whose consumption will demand higher diversification and quality standards not only from the private sector,but from public services as well.Major Chinese companies must also shift their focus to internal consumers,while reducing their dependence on foreign markets.Some of these companies have already engaged in this change,embracing new technologies of production and moving to higher     

Conservation authority board composition and watershed management in Ontario

This article contributes to the general debate about specialized governments, which may represent one or many municipalities. The research compares the Upper Thames River Conservation Authority (UTRCA) and its fragmented board and the consolidated board of the Hamilton Conservation Authority (HCA) to assess whether board composition affects policy implementation. It finds that the UTRCA is more responsive to the provincial mandate for watershed management than the HCA. This suggests that specialized governments serving several municipalities are likely to be more faithful to their mandate than those serving a single municipality.     

Coal Ash Disposal in North Carolina: The Road after Eden

Coal ash legislation came to North Carolina in the wake of two significant spills, one at the nearby Tennessee Valley Authority coal power plant in Kingston, Tennessee, and another at the Dan River Steam Station along the Dan River in the town of Eden, North Carolina. These two events, combined with an impending study by the USEPA, would galvanize the North Carolina General Assembly to pass Senate Bill 729 (the Coal Ash Management Act). This bill mirrors the federal system of prioritizing the different energy utilities based on their hazard potential and eventually terminating their use as power production and coal ash storage facilities. Additionally, the act created a coal ash management commission and the process for confirming members. In summation, this legislative step shows the North Carolina General Assembly taking concrete steps to address a problem in the handling of coal combustion residuals. In North Carolina, however, only time will tell if these measures are substantial enough to ward off another Eden.