Statistics, Testing, and Defense Acquisition Background Papers (1999) / Chapter Skim
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Strategic Information Generation and Transmission: The Evolution of Institutions in DoD Operational Testing
Strategic Information Generation and Transmission: The Evolution of Institutions in DoD Operational Testing
Pages 1-40
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We call this stage of the game test design. In equilibrium, the principal must now account for the agents selectivity in both the information generation and reporting stages.
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As the main result of the paper, we show that oversight of the test design stage always improves the welfare of the principal while oversight of the test reporting stage may not. In addition, we consider the case in which the principal can extend oversight authority over both test design and test reporting.
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In this way, Congress is able to extend oversight authority into the test design portion of operational testing. Fairly regularly, resource constraints prevent the testing agencies from addressing all of the critical operational issues.
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As early as May 1941, the Air Force Air Proving Ground Command was involved in the testing of new aircraft designs for possible procurement. Although operational testing in the other Services was soon initiated, the absence of strong oversight from the Department of Defense allowed each Service to develop unique regulations and procedures.
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Similarly, the President's 1970 Blue Ribbon Defense Panel concluded that both developmental and operational testing ofthe Army M-16 rifle had been inadequate (Blue Ribbon Defense Panel, 1970~. In 1979, GAO concluded that developmental testing was also inadequate in the case of the joint Air Force/Navy NAVSTAR Global Positioning Systems (GPS)
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DOT&E was, however, largely successful in its early attempts to improve test planning and implementation. To this end, DOT&E developed a uniform set of guidelines for Service operational testing and revised Department of Defense Directive 5000.3 Test and Evaluation.
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On many occasions, the Services were required to make significant revisions in operational test plans for major acquisitions in order to get DOT&E approval. GAO concluded that the adequacy of operational testing was significantly improved by DOT&E's efforts in this regard.
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ofthe persuasion game involves precise revelation of the truth by the agent. At the sequential equilibrium, the principal believes that any information withheld by the agent is extremely unfavorable.
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Socially valuable information increases the underlying value of the exchange between the agent and the principal. As in Matthews and Postlewaite, Shavell assumes effective antifraud and analyzes the impact of mandatory disclosure.
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A proposition determines the conditions under which the principal will use the internal auditor, the external auditor, or 5 In this context, degeneracy requires only a support for the cost distribution which does not include the value of acquiring information.
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Perhaps DOT&E would play the role of the external auditor and the Service test agencies would play the role of the internal auditor. Crawford and Sobel (1982)
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Information partitions may range from very fine, as when a single state is uniquely identified, to very coarse. Let R..' denote the payoff to DoD when testing reveals information partition (~)
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We give the following definition of socially valuable information: Definition ~ Information is said to be socially valuable if the conditional expected value within a given information partition exceeds the actualpayofifor that partition. If, for example, A (IA P B)
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5. DECISION PROBLEMS AND GAMES This section poses several decision problems and games which, we argue, are consistent with various time periods in the history of operational testing.
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Recall that this law required DoD to begin reporting operational test results to Congress. As described in section 2, DoD exercised considerable influence over the entire procurement cycle during this time period.
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We use the different names to mimic the role of each in the actual process. s We denote Congressional objective functions with uppercase symbols and DoD objective functions with lowercase.
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As described in section 2, DoD was required to report operational test results to Congress over this time period. However, Congress was not involved in the planning and conducting of the actual tests nor did they exercise any effective oversight of the test reporting stage.
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Stage 2 Nature reveals the information partition to DoD. Stage 3 DoD makes a report to Congress, regarding the information partition.
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PCSC Game 5 (5.4) This section considers the case in which DoD determines the allocation of test resources, but the actual test results are observed by DOT&E.
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Since DOT&E is the perfect agent of Congress, they will report truthfully the information partition revealed in stage 2. Since Congress will approve any program revealed as partition (B,CJ or C, the stage ~ objective function for DoD is given by equation 5.5: Us = ZA(tA)
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~ The proposition demonstrates that oversight of the test design stage (game 4) cannot decrease the welfare of the principal as compared with no oversight (game 3)
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(6.4) Thus if inequality 6.4 is satisfied, additional oversight of the reporting stage will actually reduce the principal's welfare as compared to no oversight.
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In addition, oversight of the reporting stage in conjunction with oversight of the test design stage has moved the process toward decision problem 2. This additional oversight has also improved social welfare if Congress reflects the true preferences of the society.
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Prior to the enactment of Public Law 92-156 in 1971, DoD exercised considerable control over the entire procurement process. This influence extended not only to test design but also into the final procurement decisions.
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DOT&E could just have easily concentrated its efforts on improving the test reporting process. However, DOT&E's limited budget probably would not have allowed them to impact both test design and test reporting.
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in response, the principal might choose to extend some oversight authority. We have shown that oversight of the test design stage cannot decrease the principal's welfare while oversight of the test reporting stage may.
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When information has no social value, then (1 - PA)
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6 is positive, the lemma is shown to hold for game 5. ~ Proof of Proposition 3 To show tc exceed~s tc , wefirst express the objective function from decision problem 2 in terms of the game 3 objective function: H2 = ~3 - ZA(T- tC)
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To prove tc exceeds tc , we write the objective function from game 4 in terms of the game 3 objective function: ~4 ~3 ~ ZA(T- tC)
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] PCSC where the [ast inequality follows from lemma 1.
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(A.l9) We begin by writing the objective function for decision problem ~ in terms of the game 5 objective function: = ns + (1 - ZA(T- tC)
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where the last equality follows from the fact that information is not socially valuable. When information has no social value, thefirst order conditions for game 5 simplify to the following equation: = ZA (T tc)
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ZA(T-tC) PARA o This concludes the proof of proposition 3.
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APPENDIX B: SECOND ORDER CONDITIONS This appendix details the implications of the concavity restrictions we impose on the objective functions in section 5. We begin by considering decision problem 1.
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The sufficient condition for decision problem 2 can be expressed by the following statement: 2ZA (tA )
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Notice again that the left-hand side of condition B.5 exceeds the left-hand side of condition B.4 everywhere. Again this implies that the former will be satisfied whenever the later holds.
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Crawford, Vincent P., and Joe} Sobe! 1982 Strategic information transmission.
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1990a Army Acquisition: Air Defense Antitank System Did Not Meet Operational Test Objectives. Washington,D.C.: U.S.Gove~nrnentPnnting Office.
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1991 c Electronic Warfare: No Air Force Follow-up on Test Equipment Inadequacies. Washington, D.C.: U.S.
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