Intertemporal decisionmaking in the Department of Defense

Intertemporal decision-making is that process which establishes the margin between current consumption and investment of available funds. The Department of Defense (DOD) and the Office of Management and the Budget have established a 10 percent discount rate to be used in investment project evaluation. The DOD Planning, Programming, and Budgeting System is described and identified as the system wherein intertemporal decisions are made and reviewed. The incentives of decision-makers in this process are briefly reviewed and it is concluded that intertemporal decisionmaking within the DOD is not based on any clear-cut criteria, but that the investment consumption margin is determined by the interaction of principals and agents on various levels with differing goals and incentives. Available data is analyzed and it is concluded that a consumption function wherein the objective of the consumer is to smooth out the consumption of defense services over time may be the appropriate model to apply to DOD intertemporal decision-making. That model explains the observed data better than a project evaluation model with a uniform discount rate. Policy implications of the findings are described, and it is recommended that an affordability consideration be used in the model to evaluate proposed DOD investment projects.

Name thesis:degree_name

M.A.

Level thesis:degree_level

masters

Discipline thesis:degree_discipline

Economics

Department dc:contributor.department

Economics

Grantor dc:publisher

Virginia Polytechnic Institute and State University

Year dc:date.issued

1986

Author dc:creator

• Koelln, Kenneth Albert

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Language dc:language.iso

en

Handle dc:identifier.uri

http://hdl.handle.net/10919/106127

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/106127