Augustine Investments and Weapons Systems

Abstract

ABSTRACT Augustine weapons systems are proposed as a new class of investment good. They have distinctive economic characteristics (technology intensive, high and rising unit costs, and declining volumes) leading to extensive changes in armed forces’ arsenals including the progressive replacement of military bulk with ever-smaller volumes of increasingly complex, capable, but also expensive weapons systems. While much has been written about their costs, there remain gaps in our understanding of their investment rationale and the modus operandi of their procurement. We distinguish between incremental and transformative Augustine weapons systems and discuss their investment rationale. We show that further understanding of Augustine weapons systems is obtained by using Lancaster’s model of product characteristics and the real investment options framework. Some civilian parallels are also discussed.