Investment cost escalation – an overview of the literature and revised estimates

Abstract

This article presents an overview of literature and previous estimates of defence specific investment cost escalation (ICE). ICE, the cost increase between two generations of a weapon system, can place a heavy strain on defence budgets if not properly accounted for. Previous literature specifically pinpoints the competition element as the main driver behind ICE. This article also discusses the role of technology and of supply and demand. Finally, we provide more recent estimates of ICE, using more sophisticated methods than those previously used. Results indicate that ICE estimates are reduced when changes in weapon system characteristics are accounted for.