Abstract
In this paper, we analyse the relative efficiency of the Portuguese defence industry with a stochastic frontier. In so doing we consider whether government subsidies have, in fact, resulted in an increase in the technical efficiency of the Portuguese defence-sector companies and whether there is a governance environment to enforce the desired improvement in efficiency. We find that the results are, at best, mixed, leading us to conclude that the incentive regulation introduced by the Ministry of Defence is not achieving its aims. Moreover, governance issues are not on the government agenda. Therefore, we propose a policy revision to enforce efficiency, based on a governance environment framework.
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