The opportunity cost of defense inputs Available to Purchase

This article analyzes the difference between the budgetary expense and the opportunity cost of defense inputs. If inputs are obtained by the government from a market economy with undistorted prices, the price paid for the last unit of each input acquired equals the opportunity cost. However, taxes create a distortion between opportunity cost and unit price. An additional complication, discussed using the case of military personnel, is that premarginal units may have an opportunity cost lower than the unit price determined at the margin. Principles used to determine the social discount rate are also discussed in the analysis.