Innovation

Defence innovation and procurement reform: an empirical evaluation of the US Defense Innovation Unit

Battlefields are evolving rapidly, with new technologies reshaping military strategy and tactics. Many of the new technologies originate in firms outside the traditional defence sector, rather than with the existing prime contractors. In the United States, the Department of Defense (DoD) created the Defense Innovation Unit (DIU) in 2015 to incentivise commercial tech companies to work on national security challenges. How successful has this new unit been in achieving its mission? We provide the first causal evaluation of the DIU’s effects on defence procurement. Using administrative procurement data and a firm-level panel covering 2017-2025, and employing propensity score matching, additional firm-level covariates and a staggered difference-in differences design, we find that the DIU has expanded both the extensive and intensive margins of defence contracting. We find not only a significant increase in the likelihood of receiving a DoD contract because of DIU treatment, but also in the size of the contract. Our findings show that defence innovation organisations can broaden and deepen the defence-supplier base. Governments updating their defence acquisition strategies in response to the lessons from recent conflicts can benefit from reforms that facilitate firm entry into procurement, overcoming the transaction cost and information asymmetry problems typical in defence markets.

Source : Bruegel

Global Business & Finance Magazine

Recent Posts

Rethinking the use of quantitative easing for macro stimulus

Quantitative easing has faced recent criticism for causing large central bank losses and contributing to…

3 days ago

The AI premium

Artificial intelligence is already reshaping the economy and society. This column analyses how AI affects…

3 days ago

What four charts reveal about the global jobs challenge

A record number of young people are approaching working age in emerging markets and developing…

3 days ago

Beyond the snapshot: How poverty really unfolds over time in the EU

Poverty is not a static condition but a dynamic process. Yet the at-risk-of-poverty rate, which…

3 days ago

Dividend tax reforms: Why design shapes revenue and measured inequality

Governments increasingly look to capital income for both revenue and redistribution. This column compares two…

3 days ago

Creating Jobs Through a Business Plan Competition: Does it matter how entrepreneurs are selected and how much funding they are given?

Of the estimated 244 million firms in Africa, 232 million (95%) are own-account businesses consisting of…

3 days ago