Suomen Sotatieteellinen Seura - The Finnish Society of Military Science
Abstract
Abstract
Finnish MoD has stated that the price of modern defence equipment is estimated to double in every seven years. The article separates conceptually price increases as measured by price indexes and unit price escalation, as seen by the buyer. The former is not found to increase at a rate higher than general inflation. The latter, based on several empirical studies, is found to increase at rate exceeding inflation. The rate is found to vary between classes of equipment. The explanation for this in the literature is technological change together with performance competition with adversaries. A case study with XA armoured personnel carrier is presented with the aim of bridging the viewpoints of price indexes and buyer. It is also shown in the case that indeed a rational buyer can make equipment selection choices that result in high unit price increase rate. In the end, the relevance of unit price increase and its consequences to a small nation is discussed
