DEFENSE RESEARCH-AND-DEVELOPMENT - ENCOURAGING PRIVATE VENTURE RESEARCH-AND-DEVELOPMENT WITH OPTION STRATEGIES

Central to the changes in UK Ministry of Defence procurement policies over recent years has been the attempt to shift risk out of the public sector. In the context of research and development this has taken the form of encouraging private venture investment, so-called PVR&D. Reco gnising that the scope for PVR&D is necessarily constrained by excessi ve risk and imperfect information, this paper explores the possible us e of Option contracts as a means of expanding the opportunities for pr ivate venture funding.