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.     

Enforcing trust judgments within the European Union: European Enforcement Orders

New rules have been introduced for enforcement of judgmentsin European Member States. Since 21 October 2005, for judgmentsdated after 20 January 2005 it has been possible to use a newenforcement system called the European Enforcement Order aswell as the old system of registering foreign judgments. Thisarticle examines the new rules as they apply to judgments intrust cases.     

Book reviews,etc.

Welfare Law and Order. By P. Alcock and P. Harris. [Macmillan Press. 1982. xvi and 219 pp. (inc. index). £5.95.]

Law of Child Care. By B. I. Slomnicka. [Macdonald & Evans. 405 pp. (inc. index). £9.95.]

Swift v. Greenshire County Council, Q.B.D. [Audio‐Visual Department, London University. 40 minutes. Sales prices: (VHS or Sony U‐Matic video cassette + 10 copies of the accompanying documents). Educational institutions in the U.K.: £95 + postage and V.A.T. Government bodies: £150 + postage and V.A.T. Others: £250 + postage and V.A.T. Additional copies of the documents: £2.50 each.

The Sunday Times Case

[Audio‐Visual Centre, University of Warwick. 1981. 16mm colour film. 30 minutes £260 or (hire) £20 for one day + £5 for each day thereafter; video version: £60 + cost of cassette.]

Criminal Procedure. Third edition. By Celia Hampton. [Sweet & Maxwell. 1982. lxi and 472 pp. (inc. index). £16.50 (hardback); £8.95 (paperback).]

The Police in Society. By Ben Whitaker. [Sinclair Browne. 1982. 331 pp. (inc. index). £4.95 (paperback).]

Hanbury and Maudsley's Modern Equity. Eleventh edition. By R. H. Maudsley and Jill E. Martin. [Stevens. 1981. cvi and 796 pp. (inc. index). £27.50 (cloth); £16.50 (paperback).]

Company Law. By Kenneth Smith & D. J. Keenan. Fourth edition. [Pitman, x and 506 pp. (inc. index). £7.50.]

Company Law. By M. C. Oliver. Eighth edition. [Macdonald & Evans. xxx and 386 pp. (inc. index). £3.95.]

Cases in Company Law. Third edition. By M. C. Oliver. I Macdonald & Evans. xv and 396 pp. (inc. index). £4.95.]

Rent Acts and Regulations Amended and Annotated. By J. T. Farrand and A. Arden. Second edition. [Sweet & Maxwell. 1981. xl and 435 pp. (inc. index). £16.50.]

‘O’ Level English Law. By D. M: M. Scott. Fourth edition. [Butterworths. 1981. xvi and 269 pp. (inc. index). £4.95 (paperback).]

‘O’ Level Law. By W. J. Brown. Second edition. [Sweet & Maxwell. 1982. xiv and 227 pp. (inc. index). £4.75 (paperback).]

Danish Law. A General Survey. Edited by Gammeltoft Hansen, Bernhard Gomard and Allan Philip. [G.E.C. Gads, Copenhagen. 395 pp., no index.]     

A Cross‐National Analysis of Party Switching

Though instances of party switching have been widely documented, there is little cross‐national research on this phenomenon. The prevalence of switching is therefore unknown, and the factors influencing this behavior remain unclear. Using the most comprehensive dataset on party switching ever constructed, we illustrate both that interparty movement is more common than previously assumed and that there are substantial differences in its prevalence across parties. To explain this variation, we examine the relationship between legislators' motivations, institutional arrangements, and switching. We find that motivational explanations are correlated with interparty movement and that institutional arrangements exhibit only limited direct influence on switching.