September 30, 2015

Unproductive Entrepreneurship in U.S. Military Contracting

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U.S. military contracting has been plagued by systematic corruption, fraud, and waste during both times of peace and war. We argue that these outcomes are the result of inherent features of the U.S. military sector which incentivize unproductive entrepreneurship. The military sector is characterized by an entangled network of government bureaus and private firms whose existence is largely dependent on continued government spending. These incentives, coupled with dysfunctional procurement processes, reward unproductive behaviors during peacetime. During wartime, these same incentives are intensified as significant emergency resources are injected into an already defective contracting system with an urgency to spend. Together, these factors create a magnetic force which attracts unscrupulous unproductive entrepreneurs like bees to honey. The recent experiences in Afghanistan and Iraq illustrate these dynamics.