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Politics and underestimating actual costs

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Suppose the military bureaucracy consistently misinforms Congress on the total costs of producing military hardware. Assume that it underestimates the actual costs and that the political representatives believe these estimates. How is this likely to cause a loss in efficiency? What are the efficient outputs of military hardware and the outputs desired by the military bureaucracy? How will the output chosen differ from the efficient output even if Congress attempts to achieve efficiency? In your answer, assume that the military seeks to maximize the size of its budget.

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Solution Summary

The politics and underestimating actual costs are examined. The efficient outputs of military hardware and the output desires by the military bureaucracy is determined.

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Just a few ideas on the politics here --
(There is no indication as to what is "efficient output" except for the simple notion that accurate forecasts help the private sector itself plan for their own budget).

Take a look here:


This article should give you a good idea of the issues.

Ultimately, under such a situation, the military would be the loser.
The issue is that the Pentagon will deliberately underestimate the cost of certain things for the sake of getting more projects 'covered.'
This is not a good idea, since Congress' automatic spending cuts will keep those projects from being funded.
The bigger issue is that the areas of the highest cost increases (and hence, the least likely to get ...

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