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<p>The  end  of  cold  war  levels  of  defense  expenditures  has  promoted  the  reduction  in  the  number  of  defense-related companies,  creating  potential  monopolistic  economic  scenarios  for  defense  procurement.  This  thesis  studies  one methodology  to  deal  with  these  scenarios,  based  on  the  Baron-Myerson  monopolist  regulation  mechanisms. The  Baron-Myerson  mechanism  provides  a  tool  to  regulate  monopolists  when  their  costs  are  unknown  or  cannot  be measured,  because  it  is  designed  as  to  compel  the  producer  to  reveal  its  costs  by  maximizing  the  company's  profit  when it  announces  their  true  value.  The  government  presents  a  modified  purchasing  plan  to  the  producer,  buys  according  to  the announced  costs  and  pays  a  subsidy  (or  levies  a  tax)  to  the  producer. To  apply  Baron-Myerson  the  government  needs  to  know  the  demand  for  the  good  or  service  it  requires,  and  an estimate  of  probability  density  function  for  the  possible  costs  of  the  project.  This  second  assumption  is  the  issue addressed  in  this  thesis. The  thesis  establishes  selection  criteria  and  policy  recommendations  that  the  government  can  use  to  choose  a probability  density  function  for  the  application  of  Baron-Myerson.  The  criteria  is  based  on  the  maximization  of  the expected  government  gain,  given  the  level  of  efficiency  of  the  producer.  Also,  an  analysis  of  the  policy  implications  of the  government's  choice  is  made,  to  determine  the  effects  of  a  change  in  policy  on  the  total  welfare,  the  firm's  profits and  the  government  gain.
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<br>Subjects: NA</div>
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Dezerega, Alejandro Bartolome</div>
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