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We study the retention effects of the Australian military’s decision to remove a 20-year cliff-vesting requirement from their retirement system in 1991. We follow to the present individuals who self-selected into and out of the 20-year cliff-vesting plan, as well as those who were forced out of the plan. Eliminating the high years of service cliff-vesting provision leads to consistently higher attrition over time.

The empirical literature in corporate nance has documented robust ndings regarding lever- age, dividend, and investment decisions that appear inconsistent with the predictions of lead- ing theories. For instance, many papers report negative relations between pro tability and leverage, and between dividends and investment-cash ow sensitivity. We derive a dynamic model of the rm that is able to rationalize the main empirical ndings in a uni ed way. In addition, we successfully explain the existence of all-equity rms and its observed character- istics. We justify the empirical regularities by acknowledging the endogeneity of the variables under study as well as their dependence on the primitive characteristics of the rm.

Hot spot policing is a popular policing strategy that addresses crime by assigning limited police resources to areas where crimes are more highly concentrated. We evaluate this strategy using a game theoretic approach. The main argument against focusing police resources on hot spots is that it would simply displace criminal activity from one area to another. We provide new insights on the nature of the displacement e¤ect with useful implications for the econometric analysis of crime-reduction e¤ects of police reallocation. We also propose alternative place-based policies that display attractive properties in terms of geographic spillovers of crime reduction via optimal police reallocation.

Upon reaching 15 years of service (YOS), service members must choose between the High-3 year average retirement plan and the REDUX retirement plan. This research analyzed retirement decisions of 89,884 retired U.S. military personal to investigate personal discount rates applied by individuals faced with this decision. The method of analysis was similar to previous studies of military populations by Warner and Pleeter’s 2001article in the American Economic Review and Hensel and Deichert’s 2008 article in the Review of Financial Economics. This study found significant variation between the discounting behaviors of the officer and enlisted sample populations. Additionally, the likelihood of selecting REDUX—and therefore the personal discount rates—was found to increase with lower ranks, with lower education, with the presence of a race variable other than “white,” and with the presence of the marital status variable “divorced.” Eliminating High-3 in favor of REDUX would result in substantial cost savings for the Department of Defense. However, such actions are not likely to be enthusiastically accepted by the officer population, the more senior ranks, or the more educated personnel within the military. The large disparity between officer and enlisted financial behaviors complicates the implementation of a one-size-fits-all retirement policy.

Hot spot policing is a place-based policing strategy which addresses crime by assigning limited police resources to areas where crimes are more highly concentrated. We evaluate the theoretical soundness of this strategy using a game theoretic approach. The main argument against focusing police resources on hot spots is that doing so would simply displace criminal activity from one area to another. Our results give new insights into the nature of the displacement e¤ect as well as useful hints for the econometric analysis of crime-reduction e¤ects of police reallocation. We also propose alternative place-based policies that display attractive properties regarding crime reduction.

This thesis studies different aspects of firm decisions by using a dynamic model. I estimate a dynamic model of the firm based on the trade-off theory of capital structure that endogenizes investment, leverage, and payout decisions. For the estimation of the model I use Efficient Method of Moments (EMM), which allows me to recover the structural parameters that best replicate the characteristics of the data. I start analyzing the question of whether target leverage varies over time. While this is a central issue in finance, there is no consensus in the literature on this point. I propose an explanation that reconciles some of the seemingly contradictory empirical evidence. The dynamic model generates a target leverage that changes over time and consistently reproduces the results of Lemmon, Roberts, and Zender (2008). These findings suggest that the time-varying target leverage assumption of the big bulk of the previous literature is not incompatible with the evidence presented by Lemmon, Roberts, and Zender (2008). Then I study how corporate income tax payments vary with the corporate income tax rate. The dynamic model produces a bell-shaped relationship between tax revenue and the tax rate that is consistent with the notion of the Laffer curve. The dynamic model generates the maximum tax revenue for a tax rate between 36% and 41%. Finally, I investigate the impact of financial constraints on investment decisions by firms. Model results show that investment-cash flow sensitivity is higher for less financially constrained firms. This result is consistent with Kaplan and Zingales (1997). The dynamic model also rationalizes why large and mature firms have a positive and significant investment-cash flow sensitivity.

This paper uses field data derived from U.S. Navy personnel records to estimate the effect of peers on individual financial decision making. Looking specifically at the decision made by active duty Navy personnel when choosing between two different retirement options, I test whether the decision to choose one option over the other is independent of the commands to which they are assigned. The results suggest that this decision is not independent and appears to be negatively correlated with the average choice of one's peers and is significantly affected by environmental factors specific to the command. I estimate peer effects in this decision using an OLS model, which addresses the identification problem and which partially controls for contemporaneous shocks. Initial estimates are positive and significant; however, these estimates become negative when fixed effects for unit and month are added. The negative effect implies that individuals deciding between the two retirement options exhibit a negative reactionary response to the preference of their peers. Additionally, I examine the role of financial literacy in this decision and the interaction between cognitive ability and peer effects. The results suggest that individuals with higher cognitive ability demonstrate a more significant negative reaction to their peers than do members with lower cognitive ability., http://archive.org/details/peereffectsinfin1094555548, Lieutenant Commander, United States Navy, Approved for public release; distribution is unlimited.

This paper analyzes military retirement reform; comparing the current retirement plan, HI-3 adjusted annually by CPI-W, to proposals that change base retirement pay and/or COLA indexing. The proposed changes to base retirement pay are a HI-4 or HI-5 plan and changes to COLA indexing are to use Chained CPI or CPI minus 1 percent. The plans were modeled to estimate the present value from the perspective of the government and retiree. By implementing HI-4 or HI-5 Chained CPI the government can save an estimated $0.3 to $1.7 billion per retiree cohort, respectively, and would result in an average loss to the present value to the retiree of $5,000 to $88,000. The government is indifferent if either Chained CPI or CPI minus 1 percent plan is implemented as either plan offers equal savings. The method used to adjust COLA effects officers and enlisted differently with officers preferring CPI minus 1 percent and Chained CPI preferred by enlisted retirees. However, Chained CPI has a lower loss of present value to the individual than CPI minus 1 percent when averaged over a retiree cohort., http://archive.org/details/militaryretireme1094542744, Lieutenant, United States Navy, Approved for public release; distribution is unlimited.

MBA Professional Report, This thesis is an analysis of the effect of zoning laws and regulations on the price of residential housing. Economists Edward Glaeser and Joseph Gyourko have completed significant work on this topic. Their efforts have focused on the correlation of high housing prices with zoning laws and other land-use controls, but stop short of estimating the impact of zoning laws on actual housing prices in specific markets. This thesis expands on their research and estimates what residential housing prices would be without the regulations. It also estimates the deadweight loss (DWL) caused by the zoning laws in various high-cost markets. The results show significant price reductions from both complete and partial elimination of zoning restrictions. This thesis also uses these estimates to calculate the impact of the zoning laws on Basic Allowance for Housing (BAH) in the markets analyzed. Estimated BAH rates with zoning reduced or eliminated were substantially lower in many of the high-cost housing markets studied., http://archive.org/details/theeffectofzonin1094544560, Outstanding Thesis, Lieutenant Commander, United States Navy, Approved for public release; distribution is unlimited.

The U.S. Marine Corps’ Light Armored Vehicle (LAV) is essential to battlefield supremacy, and the Marine Corps has no replacement. Because the LAV has reached the end of its intended 30 years of service, per PM-LAV, it needs a system upgrade due to a service extension to year 2035. A cost benefit analysis was conducted to calculate the possible savings of using U.S. Army Stryker replacement parts compared to, alternatively, building new vehicles. The Stryker and LAV were both built by General Dynamics Land Systems-Canada and have the same basic design, but the Stryker is newer and bigger. The analysis suggests the Marine Corps could realize savings of up to $200 million, as well as increased LAV capabilities, by using Stryker replacement parts. This would free more funds for the Marine Corps to use on other programs and bolster their light armored reconnaissance battalions., http://archive.org/details/acostbenefitnaly1094545866, Captain, United States Marine Corps, Captain, United States Army, Approved for public release; distribution is unlimited.

MBA Professional Report, Includes supplementary material., The purpose of this MBA Project is to examine the Final Report of the Department of Defense’s Military Compensation and Retirement Modernization Commission that was released January 2015 and submitted to Congress and the President of the United States. We will evaluate the recommendation for implementing a modernized retirement system, consisting of a blended Defined Benefit and Defined Contribution Plan. The primary tool used to accomplish this goal was applying a Net Present Value (NPV) analysis based on the proposed recommendation, followed by comparing and contrasting the results of various scenarios to the current military retirement plan available to service members., http://archive.org/details/evaluatingmodern1094547808, Lieutenant Commander, United States Navy, Lieutenant, United States Navy, Approved for public release; distribution is unlimited.

The purpose of this thesis is to demonstrate the benefits of using real options in defense research and development (R&D) projects. To this end, the primary research question, how can real options be used in defense R&D?, is addressed. The thesis provides a comprehensive literature review to substantiate that, in evaluating real options in defense R&D projects, the decision tree analysis (DTA) should be used rather than the real option valuation (ROV). Accordingly, this thesis employs the DTA approach along with the case study method to evaluate the options to defer, abandon, and expand in three simple defense R&D cases. These cases are analyzed first without, and then with, the respective option to demonstrate the increase in the net present value (NPV) of the R&D projects when the real options are used strategically. The results suggest that incorporating real options into defense R&D projects provides decision makers with flexibility, thus improving the project value, and that the value of real options can practically be calculated with the DTA approach. In this regard, the thesis closes an important gap in the literature and provides practitioners with valuable insights., http://archive.org/details/realoptionsindef1094551665, Captain, Turkish Army, Approved for public release; distribution is unlimited.

This report addresses deficiencies in our understanding of service members’ career trajectories. The insights generated will be used to construct more sophisticated and useful models of long run manpower projections, allowing complex simulations to predict the impact of personnel policy changes. This will allow Navy leadership to avoid unanticipated shocks to service member supply and quality. This report proceeds along two lines. First, we collect a dataset of Navy officers and examine their career trajectory, paying particular attention to their educational background and sociodemographic characteristics. Using long-term trend, as well as regression analysis, we find significant retention rate differences over the long run across gender, marital and dependent status, race, and education level. While the long run trends and regression results are illuminating, we should be wary of drawing definite conclusions about the innate ability or desire of officers to stay or separate based on these analyses. Without a formal model to distinguish between correlation and causation, we should recognize that the findings in this study primarily help direct our modeling efforts in subsequent years. Second, we provide an in-depth description of dynamic programming models, demonstrating their usefulness and internal consistency for predicting rational, forward-looking agents making choices that affect their future. We provide a detailed technical description of the model, defining value functions, Bellman’s equations, and other concepts necessary to program, estimate, solve, and simulate a dynamic programming model. We then propose the path forward to examine how service members in different communities may make different career choices., Prepared for: OPNAV N81 Assessment Division, Approved for public release; distribution is unlimited.

As the U.S. military looks to change its retirement foundation, either to address financial constraints or to realize more benefits in recruiting and retention, it is important that policy makers research and analyze all significant effects change could have on the military manpower system as a whole. In 1991, the Australian military moved from a system very similar to the U.S. model, where members were vested in a defined benefit scheme after 20 years of service to a scheme with defined benefits after only one year and compulsory contributions that were invested and returned to the member upon reaching retirement age and leaving the workforce. This paper conducts a qualitative review of the Australian and U.S. public, private, and military retirement paradigm and draws out similarities and lessons that can be learned, such as avoiding the complexity that has arisen in the Australian military retirement system. A quantitative analysis is then conducted on the last cohorts of the old U.S.-style retirement system and the first cohorts of the new system. Though the new system was found to change behaviors and produce a smoother separation profile it also raised questions about the effectiveness of retention bonuses and grandfathering., http://archive.org/details/militaryretireme1094541364, Major, Australian Army, Approved for public release; distribution is unlimited.

William Sharpe's 1964 capital asset pricing model relies heavily on an accurate assessment of the asset's sensitivity to the broader market, termed _. By modifying the classic approach to incorporate liquidity of the asset, designated _', short-term return estimates may be improved. Specifically, in this research, the limit order book is used as a short-term proxy for liquidity assessments. Unfortunately, precise data were unavailable to test: however, detailed realistic examples are outlined in order to explore both rationale and critiques of the adjusted model. In light of the adjusted CAPM, modern market conditions, such as the rise in both high-frequency trading and alternative trading systems, are investigated to determine their impact on the model and asset pricing. Parallels can be drawn to appreciate these implementation obstacles under such information operation paradigms as denial, deception, and counterdeception. These topics, the protection of critical information from leakage, as well as the advancement and detection of deliberate misinformation, are increasingly critical for asset pricing. Furthermore, in response to these implementation obstacles, short-term asset pricing research is explored under both the efficient and adaptive market hypotheses. In conclusion, the thesis offers policy makers and regulators recommendations and considerations for the evolving financial landscape., http://archive.org/details/adjustingcapital1094541419, Captain, United States Marine Corps, Approved for public release; distribution is unlimited.

MBA Professional Report, The military spends resources ensuring individual warfighter equipment is technologically advanced and operationally effective/suitable. Certain types of warfighter equipment, specifically durable goods, have long service lives; therefore, services cannot afford to replace all warfighter equipment when advances in capability or weight reduction are achieved. However, like pre-positioned stocks of heavy combat equipment, having stocks of modern warfighter equipment in a non-contingent environment ready for early deployers ensures readiness and buys time for industrial base ramp-up. The Deployer Equipment Bundle (DEB) concept would outfit early deploying brigade combat teams (BCTs) to the next major contingency with the most modern, lifesaving equipment available, providing sufficient buffer stock to enable the industrial base to ramp up to full capacity. This concept procures organizational clothing and individual protective equipment (OCIE) and personal protective equipment (PPE) for immediate capability needs and includes flame-resistant (FR) uniforms. The DEB concept increases flexibility while reducing operational risks to the Army. We found that an effective implementation of a DEB concept should leverage the best practices of the Army Rapid Field Initiative (RFI) operations, Army Pre-positioned Stocks (APS) operations, and United States Marine Corps Individual Clothing and Combat Equipment (ICCE) operations. In addition, our research identified the barriers and challenges to the acceptance of the DEB concept: aversion to change, ignorance to new concepts, Army culture, and trust., http://archive.org/details/innovativedefens1094555594, Lieutenant Commander, United States Navy, Lieutenant Commander, United States Navy, Captain, United States Army, Approved for public release; distribution is unlimited.

The purpose of this thesis is to conduct a cost-benefit analysis of converting steam-powered propulsion plants on-board Wasp-Class Landing Helicopter Dock (LHD) hulls 1 through 7 to hybrid propulsion. The objective of this research was to evaluate the net present value of conversion by weighing the cost-savings benefits of fuel savings, in-port utility consumption, and manpower against the cost of conversion. The results of the analysis conclude that LHDs 5 and 7 have a positive net present value; therefore, their conversion is recommended. LHD 6 can have a positive net present value with recommended complex overhaul schedule changes. Recommendations are made to maximize benefits to the Navy, considering potential changes in force structure and follow-on studies., Expeditionary Strike Group THREE, http://archive.org/details/costbenefitanaly1094564191, Outstanding Thesis, Lieutenant, United States Navy, Lieutenant, United States Navy, Approved for public release; distribution is unlimited.

This case uses investments in Defense R&D to help students understand the importance of real options in capital budgeting. Real options allow decision makers to incorporate managerial flexibility into investments projects by providing them with choices under uncertain and risky conditions. This case is intended for courses in managerial finance., Approved for public release; distribution is unlimited.

We study a choice made by over 20,000 U.S. military personnel annually between the High-3 and Redux retirement plans. Compared to High-3, Redux offers a $30,000 current lump sum payment in exchange for lower future annuity payments. Despite break-even discount rates between 10% and 25%, about 40% of individuals chose Redux. The likelihood of choosing Redux is decreasing with the break-even discount rate and is related to individual demographics. The implied personal discount rates from this choice are around 9.2%, much lower than found previously. Offering this choice has already saved the government over $2 billion in future retirement payments., Approved for public release; distribution is unlimited.

MBA Professional Report, This study explores specialization of health care as a solution to increase efficiency to the Department of Defense and Veterans Affairs health care. Health care for veterans and eligible beneficiaries continues to pose a significant budgetary constraint to the Departments of Defense and Veterans Affairs. Without modification to the current services provided at the Departments of Defense and Veterans Affairs, health care service will either decline or increase expense to the federal government and/or beneficiaries. Using data from the Naval Medical Center San Diego and Veterans Affairs Medical Center San Diego as examples to specialization, five additional locations were identified as similar to the medical facilities in San Diego. The six total locations represent approximately 24% and 6% of the total health care budget for the Departments of Defense and Veterans Affairs, respectively. Using research on specialization of hospitals, an estimated cost reduction to the Departments of Defense and Veterans Affairs represents a potential median savings of $0.5–1.2 billion annually for the Departments of Defense and Veterans Affairs, respectively., http://archive.org/details/costnalysisofcon1094555617, Lieutenant Commander, United States Navy, Captain, United States Army, Approved for public release; distribution is unlimited.

Naval Research Program (NRP) report, Prepared for: OPNAV N13 Military Personnel Plans and Policy, Approved for public release; distribution is unlimited.

Prepared for: OPNAV N13 Military Personnel Plans and Policy, Approved for public release; distribution is unlimited.

Upon reaching 15 years of service (YOS), service members must choose between the High-3 year average retirement plan and the REDUX retirement plan. This research analyzed retirement decisions of 89,884 retired U.S. military personal to investigate personal discount rates applied by individuals faced with this decision. The method of analysis was similar to previous studies of military populations by Warner and Pleeter’s 2001article in the American Economic Review and Hensel and Deichert’s 2008 article in the Review of Financial Economics. This study found significant variation between the discounting behaviors of the officer and enlisted sample populations. Additionally, the likelihood of selecting REDUX—and therefore the personal discount rates—was found to increase with lower ranks, with lower education, with the presence of a race variable other than “white,” and with the presence of the marital status variable “divorced.” Eliminating High-3 in favor of REDUX would result in substantial cost savings for the Department of Defense. However, such actions are not likely to be enthusiastically accepted by the officer population, the more senior ranks, or the more educated personnel within the military. The large disparity between officer and enlisted financial behaviors complicates the implementation of a one-size-fits-all retirement policy., http://archive.org/details/personaldiscount1094549609, Lieutenant, United States Navy, Approved for public release; distribution is unlimited.

This thesis analyzes the Modernized Retirement System introduced in the National Defense Authorization Act for fiscal year 2016. Specifically, this thesis determines if the Modernized Retirement System is likely to affect manpower levels. A survey was conducted within the active component of the U.S. Marine Corps to compare expected lengths of service between the current retirement system and the Modernized Retirement System. The analysis utilizes Kaplan-Meier survival analysis for expected lengths of service and probit regression models to evaluate various retirement choices under the Modernized Retirement System. The results of the analysis indicate the U.S. Marine Corps will experience a change in expected lengths of service for officers and enlisted Marines under the Modernized Retirement System. On average, enlisted Marines exhibit an approximate 2 percentage-point difference in length of service while officers exhibit an approximate 15 percentage-point difference across the two retirement systems. As the U.S. Marine Corps implements the Modernized Retirement System in 2018, retention and recruiting policies will need to adjust to retain and recruit the necessary individuals to serve in the U.S. Marine Corps., http://archive.org/details/survivalnalysiso1094548570, Captain, United States Marine Corps, Approved for public release; distribution is unlimited.

The military is experiencing a pilot retention problem that is getting worse. The government spends millions of dollars training pilots in the most advanced aircraft in the world, only to watch them leave for the commercial airline industry at the first opportunity. As airline pilot hiring continues to improve, military pilots will depart the services for the assumed increase in financial compensation of the airlines. This thesis compares two scenarios: one in which a military pilot leaves the service to become a commercial airline pilot upon completing the initial active duty service obligation (ADSO), and one in which a military pilot defers becoming a commercial airline pilot until after reaching military retirement eligibility. The comparison is made by calculating lifetime income cash flows of both scenarios, and then discounting them to achieve a net present value (NPV). The findings conclude it is financially prudent for military pilots to remain in the service until retirement. The current policies enable a retired military pilot to earn over 9% more in NPV when compared to the military pilot who separates at ADSO completion. Military pilots who voluntarily separate prior to retirement for financial reasons are incorrectly evaluating the assumed pay disparity between the airlines and the military., http://archive.org/details/thecareercostdoe1094545874, Lieutenant Commander, U.S. Navy, Approved for public release; distribution is unlimited.

A 2013 Congressional Budget Office report estimates that DOD will need to reduce 2014 to 2021 total costs by $701 billion in order to meet the most stringent limitations set by the Budget Control Act of 2011. It is obvious that DOD must restructure the MRS to achieve the necessary reduction in costs. Too often, however, the department looks to private industry for solutions to DOD problems. While not to be overlooked, private industry is not always the best model by which to develop solutions to military problems. The unique risks to which service members are exposed require a different analogue to ensure a successful comparison and adequate solutions. In this light, a more representative group outside of DOD can be found in law enforcement officers. This study analyzes the retirement systems of DOD service members and the California Highway Patrol in an effort to accurately compare the two., http://archive.org/details/comparingmilitar1094542610, Lieutenant Commander, United States Navy, Approved for public release; distribution is unlimited.