The biggest bang for the buck: Leveraging best practices in defence procurement for Europe's rearmament

Rodrigo Carril

No 6, Kiel Reports from Kiel Institute for the World Economy

Abstract: Europe is embarking on a historic increase in defence and security spending. If done well, it will fundamentally reshape European defence capabilities amd remake the European defence industrial base. If done badly, Europe risks wasting billions for outdated and expensive equipment with little difference in military capability. The application of key economic insights from mechanism design and best practice in procurement is essential. This report synthesizes the key insights from economic research on how to maximize European military capabilities, economic resilience, and innovation per Euro spent. (i) The procurement of innovation should be placed at the centre of Europe's defence strategy. Evidence from U.S. programmes shows that autonomous, flexible agencies with highly skilled programme managers, bottom-up project selection, and active project management outperform rigid, top-down systems. A combination of funding pushes for R&D and pull incentives through purchase commitments is most effective. (ii) Europe must prepare for demand surges during a conflict and secure actual production capacity through contracts across the supply chain. Future scalability of production, unitcost reduction, and ensuring secure supply chains and critical inputs must be central to the strategy. (iii) Effective procurement processes require well-trained and competent buyers with sufficient discretion, combined with strong ex post accountability. Flexibility and discretion are typically preferable to rigid ex ante rules and overspecification in slow bureaucratic processes. For standardized goods such as ammunition, competitive auctions and fixedprice contracts perform well. (iv) On a European level, the case for centralising defence procurement is strong. A single European defence procurement market would yield large cost savings, strengthen the industrial base, enhance interoperability, and improve coordination of R&D and surge-capacity investments.

Keywords: defence procurement; defence spending; governance; contract design; innovation; competition; military industrial base; R&D incentives; European defence integration; Verteidigungsbeschaffung; Verteidigungsausgaben; Governance; Vertragsgestaltung; Innovation; Vertragstheorie; Wettbewerb; militärisch-industrielle Basis; F&EAnreize; europäische Verteidigungsintegration (search for similar items in EconPapers)
JEL-codes: D44 H41 H56 H57 L14 L52 O31 O38 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-ppm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/344235/1/198683915X.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkrp:344235

Access Statistics for this paper

More papers in Kiel Reports from Kiel Institute for the World Economy Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().