A Cost Increase Analysis of Weapon Systems Using the Paache Index: Cases from the German Bundeswehr

The media and the public often make claims regarding the excessive cost increases in the development and production of major weapon systems such as fighter planes, submarines or tanks. The purpose of this research is in assessing the cost increase of such weapon systems during their procurement periods with the help of the Paasche price index. In contrast to other approaches, which focus upon either the specific situations of single weapon systems or cost increases relative to planned budgets, we compare several projects of military services and their cost increases over time to reveal generalisable trends.

For this purpose, we used a framework model that allows for performance and cost comparisons. This paper primarily emphasises the cost perspective by calculating a Paasche index for each chosen project. As a background case for our analysis, we have used the acquisition projects for major weapon systems in Germany. However, the framework model that this study employs is universally applicable.

In contrast to the public perception of cost increases, we could not find any clear trend that would indicate that modern weapon systems have a significantly higher (or lower) cost increase than was the case for projects several decades before. To give brief insight into the empirical findings, the cost increase ratios of the Starfighter and Eurofighter jets have the same level, while cost increase ratios of other weapon systems (APC tanks, submarines) differ significantly (to the worse and to the better) over time. Our findings imply that there is no general trend that today the costs for weapon systems increase more/less than some decades ago. This paper calculates data only from the regarded seven cases therefore we could not question the causes for this observation on basis of our sample. However, it appears that, within a specific service or a specific vehicle type (tank, fighter jet, ship/boat), cost increases may be similar over time.