COMMITMENT IN REGULATION - DEFENSE CONTRACTING AND EXTENSIONS TO PRICE CAPS

Department of Defense regulation of weapons contracting uses incentive devices common to public utility regulation. This paper examines parallels between fixed-price contracts in weapons acquisition and the use of price caps to motivate public utilities. It uses defense contracting experience to identify limits to the efficiency and administrability benefits one can expect adoption of a price caps regime to produce in practice. © 1991 Kluwer Academic Publishers.