Procurements (Purchase or R&D) for Ballistic Missile Defense Systems

Focusing on THAAD, SM-3, and L-SAM

Abstract

We perform cost analysis for evaluating alternatives to effectively defend the threat of North Korean ballistic missiles. As alternatives, THAAD, SM-3, and L-SAM are considered, and we analyze the factors affecting to the cost of acquiring alternatives depending on the way to procure them, e.g., by purchasing, or research & development (R&D). Assuming that each alternative can be operated for 30 years, the total cost, which consists of acquiring cost, operation/maintenance cost, and R&D cost, is compared using net present value. Furthermore, we perform sensitivity analysis for maintenance rate, terrain cost and increase rate of R&D cost that involve uncertainty for the future. Cost analysis results show that THAAD incurs the highest cost and SM-3 is the most economic alternative. However, sensitivity analysis shows that priority can be changed depending on uncertainty parameters. Although our results do not directly support decision-making on the best alternative due to its various uncertainties, these can provide a guideline on economic evaluation required for public policy decision-making process, especially under the situation that all the three alternatives cannot be acquired at the same time due to the limitation of defense budget.