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Over the next decade, military satellite communication (MILSATCOM) systems will cost taxpayers billions of dollars. The magnitude of these costs and their distribution in the economy will be directly affected by whether public policymakers choose to lease or to buy these systems. This Note examines the arguments of leasing's opponents and proponents and the conclusions suggested by past leasing experiences. The analysis demonstrates that by far the most important consideration in deciding whether to lease or buy MILSATCOM systems is the cost of risk-bearing, an issue that has largely been ignored in the public debate: under a purchase, risks are borne by taxpayers, whereas under a lease, they are borne by the shareholders of defense contractors. On the basis of their analysis, the authors suggest that the Department of Defense consider soliciting bids that specify terms for both lease and buy options on MILSATCOM systems, since the competitive bidding system has the potential to provide a great deal of information important to policy decisions in risk-bearing.

This report is part of the RAND Corporation Note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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