Department of Defense Capital Investment Incentive Policy: A System Dynamics Model and Analysis.
Abstract
During the past decade, defense aerospace sector investment has ranged from less than 2% of sales to slightly over 4%. During the same period, capital investment in all manufacturing has been near 5%. Capital investment, which leads to higher productivity and lower costs, has possibly not received a representable portion of the resources available for investment in the aerospace defense firms. The primary aim of this system dynamics study was to understand aerospace defense contractor investment behavior, and evaluate proposed government policies designed to motivate investment in capital within the current market structure. The approach taken analyze investment projects and capital equipment expenditure flows that arise as a result of the overall decision framework of the firm. The continuous corporate computer simulation model addresses several of the determinants which enter into the capital investment decision. The experimental design includes analysis of various tax and profit policies. Simulation results suggest that increased capital investment is closely linked to the amount of aircraft orders. Consequently, the short-term motivator of increased capital investment is a higher market demand. Tax and profit policy changes, as those suggested by Carlucci Initiative 5, have minor and only long-term effects on the rate of capital investment. (Author)
Document Details
- Document Type
- Technical Report
- Publication Date
- Dec 01, 1982
- Accession Number
- ADA124813
Entities
People
- Kenneth C. Konwin
- Richard W. Barker
Organizations
- Air Force Institute of Technology