An Analysis of Manufacturers' R&D Decision-making in Defense Procurement with Incomplete Information

This paper is intended to research the manufacturers' decision-making for R&D investment in defense procurement with incomplete information. On the basis of constructing the model of R&D investment scale adjustment of defense procurement, it explores the equilibrium of manufacturers' R&D investment decision-making in defense procurement on condition that the monopolistic contract valuation of manufacturers is incomplete information. It comes to the conclusion that: under certain conditions, manufacturers' investment equilibrium of R&D projects is identical to the government expectation. However, if the monopolistic contract valuation of manufacturers is incomplete information, the investment equilibrium may deviate from the government expectation. And it's even possible that manufacturers would retreat form the contest, which will severely influence the performance of government's reimbursement policy. Therefore, in the practice of defense procurement R&D, the government must ensure that predicting the future demand accurately and adopting a definite objective of procurement in order to keep manufacturers' anticipation about the monopolistic contact being consistent with it desired.