chines) for a given period of time. By so doing, it would benefit from economies of scale and leverage investments by others. However, it would lose flexibility. If the government backs the “wrong horse,” the rate of future advances might be slowed.

At least in part, the trade-off between commitment and flexibility reflects mandates to maintain a procurement process with high integrity. The government intentionally layers the procurement process with enormous amounts of auditing (and other legal constraints) in order to eliminate corruption. While such mandates serve the purpose of avoiding favoritism, they inevitably slow down the process of acquiring a new system, adopting frontier technology, and coordinating across different bidding processes.10 They may also make it harder to weigh intangibles such as a good, continued relation between government and a vendor.

Secrecy Versus Spillovers

Because the government has many missions that depend on secrecy, such as code breaking and weapons development, it often sacrifices spillover benefits. A national defense agency may develop superior hardware or software that would benefit other government agencies or other users around the world by allowing them to avoid “reinventing the wheel.” However, to maintain secrecy for reasons of national security, the government does not share these innovations. Obviously there are many cases where secrecy is paramount, but there may be many cases at the margin, where the cost of reducing secrecy (at least to the degree of allowing government agencies to share information) would be justified by the spillover benefits to others.

Secrecy also reduces spillovers in the reverse direction. If much of the research on certain forms of supercomputing is done in a classified environment, then one creates two distinct supercomputing research communities; an academic one that is open to foreigners and a classified one. The two communities have a limited ability to interact, thus reducing the in-flow of people and research ideas from universities to classified supercomputing. Such a separation is more hurtful in areas where technology changes rapidly.

Overall, managing each of these trade-offs requires a detailed understanding of the specific needs and requirements of different agencies and institutions, as well as the environment and infrastructure in which

10  

See, for example, Steven Kelman, 1990, Procurement and Public Management: The Fear of Discretion and the Quality of Government Performance, Washington, D.C.: American Enterprise Institute Press; Shane Greenstein, 1993, “Procedural Rules and Procurement Regulations: Complexity Creates Trade-offs,” Journal of Law, Economics, and Organizations, pp. 159-180.



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