Use it or lose it: On the incentives to spend annual defence operating budgets

• Published in: Defence and peace economics Vol. 25; no. 4; pp. 401 - 413
• Main Authors: Hurley, W.J., Brimberg, Jack, Fisher, Brent
• Format: Journal Article
• Language: English
• Published: Switzerland Routledge 01.01.2014; Taylor & Francis LLC
• Subjects: Canada; Costs; Criticism; Defence departments; Defence policy; Defense spending; Economic models; Economics of defence organization; Federal funding; Government departments; H83 Public Administration; Lapsed funding; Managers; Military expenditure; Studies; Use it or lose it; Western countries; Canada
• DOI: 10.1080/10242694.2013.780758
• ISSN: 1024-2694

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.