Cost overruns in weapon system purchases have plagued the Department of Defense (DoD) throughout its history and have resulted in schedule delays and potentially reduced combat capability. This thesis created an empirical model that begins to explain those cost overruns. The model describes how changes in defense budgets, consolidation of the defense industry, acquisition reform, war, and cost estimating error are related to cost overruns. The cost performance of 186 major weapon system programs managed by the Air Force, Army, and Navy from 1970 to 2002 was described using a panel regression model. This research found that funding instability resulting from changing levels of defense budgets accounted for an increase of over 13.3billioninweaponsystemcostssince1970.Thisresearchalsofoundthatthedefenseindustryconsolidationofthe1990sdidnotresultinsignificantsavingstotheDoD.Finally,thisresearchfoundthatcontrarytopaststudies,severalacquisitionreformsarecorrelatedwithadecreaseinweaponsystemcostoverruns.Inparticular,reformsresultingfromtheNunn−McCurdyActof1982,thePackardCommissionRecommendationsof1986andtheFederalAcquisitionStreamliningAct(FASA)of1994resultedinsavingsofalmost124 billion since 1982