A representative defense contractor : model specification I

Abstract

A model is specified of a representative defense contractor. The contractor is assumed to maximize the expected utility of managerial emoluments, performance of the contractor's product and corporate annual net income over a finite planning horizon. This maximization is constrained by the technology of research and development, test and evaluation, manufacturing and a centralized warehouse-inventory operation. There are commercial sales as well as a number of on-going and potential DOD projects. An extensive accounting model of the contractor is included. Corporate financial management involves the issuing the retiring of short- and long-term debt and equity in addition to the choice with respect to dividends and retained earnings. The inputs of the contractor include plant and equipment (both contractor and government supplied in T and E), engineering support labor (both contractor and government supplied in T and E). administrative labor, manufacturing labor, weapon system operators (both contractor and government supplied in T and E), material, purchased parts, subcontracted items, and government furnished items. Risk is introduced by considering each possible alternate event due to such factors as rivals' actions, technological risk, capital market conditions and variation in government and commercial sales to be grouped in states-of-nature. Thus, the contractor is assumed to plan for a variety of future state-of-nature (contingencies) and chooses a complete plan (inputs, outputs, financing, proposal bids, etc.) for each contingency. (Author)