Abstract
This paper uses an output-oriented stochastic distance function to compute defense contractors’ technical efficiency as a measure of performance. Then, nesting a market structure and conduct equation into the frontier, we identify firm and industry factors that affect the observed inefficiency levels. The empirical results confirm that there exist multi-directional causal correlations among market structure, conduct, and performance of defense contractors. In addition, the paper shows that there exists a great variability among the different sectors that compose the defense industrial base. Therefore, policies oriented to influence the industry must take into account the multi-directional causal relation among its components.
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