Annual Defence Economics Prize
Le Annual Defence Economics Prize from the French Ministry of Defence is awarded to a thesis, a presentation of original scientific work or a postgraduate dissertation for its quality, originality and interest in the field of defence economics.
In 2015, Josselin DROFF, a researcher at the Chair in Defence Economics was winner of the for his thesis entitled« The Space Factor in Defence Economics: Application to the Maintenance in Operational Condition (MCO) of Defence Equipment« .
This year, two prizes were awarded on Friday 5 October 2018. The thesis prize is awarded to Antoine PIETRI (IRSEM - Paris 1) for his thesis on conflict modelling and the University Dissertation Prize was awarded to Oishee KUNDU (Science Po Paris - Manchester Business School) for his work on the operational, strategic and economic issues relating to weapons programmes in India.
Presentation of the Defence Economics Prize, 5 October 2018 at Balard, Ministry of the Armed Forces with from left to right: Oishee Kundu (Sce Po Paris, Manchester Business School), François Devoucoux Du Buysson (DAF), Christophe Mauriet (DAF) and Antoine Pietri (IRSEM)
Thesis prize: Antoine PIETRI
December 2016, Antoine Pietri defended his thesis entitled« The economic theory of conflict in the light of Contest Theory‘ »at the Centre d'Économie de la Sorbonne (CES), University of Paris 1 Panthéon-Sorbonne. This thesis was carried out under the supervision of Mehrdad Vahabi and Claude Ménard.
His thesis consists of four research articles about how the economic theory takes into account conflict, appropriation and violence. In this thesis, the theoretical framework used is that of the ‘Contest Theory’which takes into account the appropriation by a «butter-canon arbitration». In other words, an individual - or a country - has limited resources which it can use for appropriative purposes (‘canons’) or productive purposes (‘butter’).
- Le first article explores the ins and outs of this theoretical framework for the economic analysis of conflict.
- Le second article deals with the territorial expansion of empires. It shows that the more a territory's population has assets that can be easily redeployed, the greater the territorial dominance of merchant empires over other forms of empire.
- Le third article (unpublished) looks at the possible motivations for arms trading between two enemy countries. The main finding is that if the seller has both a military and civilian technological edge over the buyer, the arms trade can be mutually beneficial, even if the countries are enemies.
- In the fourth article, The author proposes to use the virtual world to study the formation of the probability of victory on a battlefield. Using an original database derived from video games EVE Online, It would appear that the best way of understanding the probability of victory in a conflict is to study the relative difference between the forces involved (and not the ratio or absolute difference).
Antoine Pietri is now a researcher at the’Strategic Research Institute of the École Militaire (IRSEM) and continues its work on’operationalising its research.
Memory Prize: Oishee KUNDU
Title: The Challenges of Defence Procurement in India in the 21st Century
Author: Oishee Kundu (Sciences Po, Paris), Supervisor: Jean-Michel Oudot,
Economic analysis of defence procurement is necessary because, like all public procurement activities, it faces agency problems and transaction costs. The identification of challenges in defence procurement can be used to control the impact of risks on operational, strategic and economic objectives of nation-states.
In the 21st century, the globalisation of defence industries and the increased private sector participation is changing market conditions and procurement choices. Additionally, warfare practices and strategies have changed, which has also changed procurement practices.
The motivation of this research is to identify defence procurement challenges in India in the 21st century- a country that is increasingly becoming important as a buyer of weapons, is making new industrial and technological choices, has pressing operational needs due to its territorial disputes with Pakistan and China, and continues to balance these against an unfulfilled developmental agenda.
Existing literature and gaps
The theoretical framework for studying defence procurement challenges have been the agency theory, which assumes self-interested rational agents whose actions are a reaction to incentives, or transaction cost economics, which assumes opportunistic behaviour by agents in contracts that are associated with high degrees of uncertainty.
These theories are incorporated with empirical methods like benchmarking and risk analysis to identify the challenges that can occur at different stages of procurement, and the risks can be broadly classified as technological (relating to technical complexity, research and development), contractual (the negotiation and enforcement of contracts, organisational (relating to procedures and organisational structures, and institutional (political climate, market environment).
There is a systemic gap in the literature on Indian defence procurement challenges in terms of methodology and there is much to be gained through a quantitative determination of the probability and impact of risks. The methodology of risk analysis, which has been used in US, UK and France to identify procurement problems, has not taken place in India so far.
Research question and methodology
The research question aims at identifying the challenges of timely procurement in Indian defence, since non-adherence to stipulated timelines has economic, operational and strategic implications.
The methodology of risk analysis has been introduced in this context- risk analysis starts with objectives and creates corresponding parameters on which one can obtain statistics to quantify performance and use the dataset so created to identify challenges and their impact.
Here, the performance parameter is schedule performance, calculated as delay, which is the excess time taken expressed as a percentage of stipulated time.
The unit of analysis is a contractual activity, and details on 90 such contracts could be obtained from the defence audit reports published by the office of the Comptroller and Auditor General of India. This original dataset forms the basis of the study and while it is not a random sample of Indian defence contracts (the publicly available defence audit only publishes information on contracts that displayed deviations), it covers the range of procurement activities and includes both domestic and foreign agents with whom the Ministry of Defence enters into a contract.
53 interviews were further conducted in India to substantiate the findings, appreciate the complexity and nuances, cross-check points of view, ideas and conclusions, and gain the stakeholder perspective. The interviews were conducted with a questionnaire that contained both open-ended and closed questions. The interview respondents were identified on the basis of their involvement in an executive capacity (government or industrial) in defence procurement in recent years and through snowball sampling.
Findings
The findings display a high probability of technological risk, followed by contractual risks. Contractual risks are also the cause in contracts displaying excessive delays (greater than 300%). Technological risks are concentrated in cases of indigenous procurement while contractual risks mostly occur in contracts where the Ministry of Defence has to deal with agents outside its own organisation- foreign suppliers and Indian private companies. This indicates frictions and transaction costs.
Contractual risks are relatively more important because of their probability and impact, measured as the average delay caused by the risk. They are also mostly found in the contracts of the Indian Army, the most pro-active military service in India, and thus assume greater importance from the operational perspective.
A deeper discussion of technological risks shows that most of them (13 of 31 cases) are due to lack of infrastructure, and in the case of contractual risks occurred during production and delivery phase (22 of 28 cases), i.e. ex post, hinting at opportunism and reaffirming the behavioural assumption of opportunism in transaction cost economics.
Conclusions
Technological risks in indigenous production need to be recognised, especially in light of the current government's flagship ‘Make in India’ initiative- a set of policies that favours manufacturing in India. However, such an endeavour will be limited in success if infrastructure needs are not addressed.
Additionally, the transaction costs that the Ministry of Defence is incurring with foreign suppliers and even Indian private companies is of special concern given India's dubious distinction of being the largest arms importer in the world.
The policy implication of this study for improving schedule performance in Indian defence procurement would be to build infrastructure and skills in research and contracting. Beyond that, this study shows, like others which have used risk analysis, that the methodology can give new insights into the discussion of procurement challenges, and at odds with stakeholder perceptions.
NBA more detailed presentation from the work of the two authors is available at the following link: Ecodef n°106, OED
