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Use it or lose it: On the incentives to spend annual defence operating budgets
Authors:W.J. Hurley  Jack Brimberg  Brent Fisher
Affiliation:The Royal Military College of Canada, Kingston, ON, Canada.
Abstract:In most western countries, there is a strong incentive for defence department budget-holders to expend all of the funds they are authorized to spend in a fiscal year. In this paper, we question whether this emphasis makes sense. We develop a model of a defence department’s operating expenditure assuming a fixed level of funding for a year and uncertain costs. The results of the model suggest that the incentive for departmental managers to expend all authorized funds is inefficient. We explore the implications of the model for the Department of National Defence (DND) in Canada in light of the recent criticism of DND lapsed funding by the Auditor-General of Canada.
Keywords:Lapsed funding  Defence departments  Use it or lose it  Economics of defence organization
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