This report presents a case study of how marginal-cost analysis can be used to influence investment decisions, not only in deciding whether to procure a major weapon system, but also how to invest R&D dollars for maximum potential leverage in the long run. The case involves the strategic defense system that the United States examined in the mid-1980s, following President Reagan's "Star Wars" speech of March 1983. The analysis presented here addresses the relative costs to the defender and the attacker in a race in which attackers added re-entry vehicles and defenders added interceptors. The initial results, based on the technology necessary for near-term deployments (by the year 2004), were very unfavorable. Subsequent analysis considered a variety of plausible technological breakthroughs and highlighted the potential value of what came to be called "brilliant pebbles," although great uncertainty remained about whether a favorable marginal cost ratio could be obtained. While not a complete policy analysis, the study is an important example of systems analysis: it affected policy at the time by tempering the claims of strategic defense enthusiasts and channeling R&D and architecture studies in fruitful directions.

"MR-483-RC"--p. [4] of Cover.

Introduction -- Background -- Purpose and nature of the RAND study - The political context of the analysis -- Major results -- How the study was received -- Study approach and methods -- Configuration of defense system architectures -- Estimating costs of defense and offense -- The effectiveness of defenses under different threats -- Estimating MCR: results -- RPI architecture: the initial estimate -- Re-estimating the MCR for the RPI architecture -- Conclusions -- Limitations of the study -- Lessons learned.