Systematic Underinvestment in the Global Space Sector: An Explanation and Potential Remedies

Abstract

This article introduces a simple game-theoretic model to explain how policymakers' decisions may result in underinvestment in the global space sector. Because of international spillovers, policymakers can arrive at a globally suboptimal Nash equilibrium. We then show that policymakers may achieve optimal outcomes by focussing on international, rather than domestic space projects. Next, we introduce time dynamics to enhance the model's realism and show that improving quantitative cost-benefit analysis methods may further remedy underinvestment, as policymakers can overcome the influence of international spillovers and reach the optimal outcome by assigning higher values to future payoffs. However, when we modify the traditional iterated prisoner's dilemma to more accurately represent space sector funding dynamics, we find further evidence for a propensity to underinvest. As such, we show that the dynamic game solution is imperfect: democratic policymakers are inherently constrained by electoral cycles and future payoffs from space programs that tend to be difficult to predict, especially when compared to more traditional public policy programs. We recommend that governments should support private companies in the space sector to benefit from the comparative advantages they offer.