Study Of Military Pricing Problem Under The Condition Of Information Asymmetry

The military product pricing is affected by a lot of factors, which contain subjective and objective ones, institutional and non-institutional ones and so on. The paper mainly analyses the factors affecting military product pricing from the view of information asymmetry. On the framework of the information economics, the article analyses the manifestations,the causes and the consequences of the adverse selection and moral hazard problems in the military product pricing. It brings up the incentive mechanisms and specific preventive measures to the two problems, and explores the new model of military product pricing.This paper describes currently military product pricing model of China. Then it analyses major factors affecting the pricing and the disadvantages of current pricing model. It focuses on the adverse selection and moral hazard problems of military product pricing.The result of adverse selection is the military will cut down the price in the negotiations, disregarding the bottom line of the cost and the special nature of high-tech industries. This may make some defense enterprises feel unprofitable and leave procurement market, which are very skillful and have strong research and development capabilities. Then the modest enterprises will undertake the projects. They will get the contracts at a lower price and produce the military product according to their own capabilities. Of course, the quality is poor and the progress also can not be guaranteed.However, the direct consequence of moral hazard is " progress delaying ", "price arising" and "quality decreasing". The agent slows the progress of projects, raises production costs, and lowers the quality of military products in order to achieve their own maximal interests.Against the two problems, the article designs specific settlement mechanism, which makes the national defense enterprises reveal the true information positively. The military can design different pricing contracts to control the efforts and profits of the enterprise according to the extent of information asymmetry, which also prevent the adverse selection and moral hazard problems. By this way, the military can achieve the objective of maximizing economic benefits. Finally, the article tries to explore a new military product pricing model. The goal of this model is to enhance the interests of both the military and national defense enterprises, to maximize the economic effectiveness of the military, and to realize peoples get more who are the capable and industrious.