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Abstract: All elements of the defense department’s budget face scrutiny as military funding decreases. Military compensation is an attractive target because it represents approximately one third of the defense budget. Our research examines mechanisms to improve several areas of military compensation, particularly emphasizing retention, separation, and assignment incentives.

This paper proposes a reverse uniform price retention auction, called the Combinatorial Retention Auction Mechanism (CRAM), that integrates cash bonuses and non-monetary incentives (NMIs) into a single cost parameter, retains the lowest cost employees, and provides retained employees with compensation equal to the cost of the first excluded employee. We describe the optimal bidding strategy, and show that CRAM reduces total cost and increases total social welfare compared to a benchmark monetary retention auction. Because CRAM and the benchmark may retain different employees, we describe for which employees and under what conditions utility may increase or decrease under CRAM.

Bio:  William (Bill) Gates was appointed Dean of the Graduate School of Business and Public Policy (GSBPP) at the Naval Postgraduate School (NPS) in February 2009.  A graduate of Yale University (Ph.D.) and UC San Diego, Dean Gates has been an economics professor in GSBPP since 1988. He was an economist at the Jet Propulsion Laboratory before joining NPS. He has received teaching excellence awards from GSBPP, NPS, and Monterey County.  Dean Gates’ research focuses on mechanism design for military manpower and acquisition applications. Past research involved policy analysis, cost-benefit analysis, burden-sharing in defense alliances, and government R&D and technology policy.

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