The department of defense contractor investment policy model

The primary aim of this system dynamics study was to understand aerospace defense contractor investment behavior, and evaluate government policies designed to motivate investment in capital within the current fighter/attack aircraft manufacturing market structure. The approach taken analyzes investment projects and capital equipment expenditure flows that arise as a result of the overall decision framework of the firm. The continuous corporate computer simulation model addresses several of the determinants which enter into the capital investment decision. The experimental design includes analysis of various tax and profit policies. Simulation results suggest that increased capital investment is closely linked to the amount of aircraft orders. Consequently, the short-term motivator of increased capital investment is a higher market demand. Tax and profit policy changes, as those suggested by Carlucci Initiative #5, have minor and only long-term effects on the rate of capital investment.