An equilibrium analysis of R&D decision-making in defense procurement with cost-reimbursement based on quotas under incomplete information

In defense procurement R&D investment, the fruit of R&D is greatly affected by the investment strategy profile of manufacturers. In this paper, we studies the investment equilibrium with cost-reimbursement based on quotas and analyzes the Impact of incomplete information on equilibrium of R&D decision-making. The results show that in defense procurement R&D, when R&D investment reimbursement rule is cost-reimbursement based on quotas and manufacturers' valuation on monopoly contract of defense production is incomplete information, manufacturers' investment equilibrium will deviate from the expected investment equilibrium of government, and what's worse is that manufacturers may retreat from the “design contest” of defense procurement R&D. The results mean that incomplete information will affect the effect of government's reimbursement rule, which means cost-reimbursement based on quotas can not overcome the disadvantages of proportional-reimbursement.