Defense Contracts

An Analysis of Adaptive Response

by Oliver E. Williamson


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A study of the methods by which the Air Force and other government agencies can keep development contract costs within reasonable bounds. The role of task uncertainty in the problem of contract cost control is emphasized, and it is argued that in many situations the adaptive responses of the firm can vitiate the effects of contractual arrangements aimed at reducing costs through profit-sharing incentives. The analysis concludes that one of the most effective ways to strengthen cost controls is to reduce the task uncertainty associated with contract negotiations. An adaptive response model is presented in an appendix. (See also RM-2482-PR, RM-2948-PR.)

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