Klaus P. Heiss and Oskar Morgenstern (study directors); Mathematica, Inc., Advanced Technology Economics Group, with named chapter contributors · 1972
Directed by Klaus P. Heiss and Oskar Morgenstern at Mathematica’s Advanced Technology Economics Group, this multi-volume NASA contractor report evaluates the Space Shuttle as a public investment. Its executive summary and three volumes bring together economic theory, mission forecasts, engineering comparisons, cost and reliability estimates, and macroeconomic analysis. The central question is not whether reusable spacecraft are technically attractive, but whether developing a particular system would reduce the costs of an anticipated space program enough to justify its initial expenditure. Its recommendation is therefore conditional on mission demand, payload economies, financing constraints, and attitudes toward risk.
The executive summary and Volume I establish the investment problem and the principles governing comparison. Chapter 1 substantially repeats the executive summary; the subsequent methodological treatment and mathematical appendices explain how alternatives should be evaluated. The report begins by acknowledging a consequential limitation:
In the absence of an appropriate measure of benefit, our "benefit-cost analysis" has to measure the "benefit" solely by savings in the cost of space programs.
This defines the study’s scope. The analysis does not establish the total social value of space exploration or decide how much society should spend on it. Instead, it asks how alternative transportation systems would change the expense of undertaking assumed missions. Savings stand in for benefits because the substantive achievements of those missions lack an adequate common measure. The economic case for the Shuttle consequently depends on the program it serves, rather than on an independently established valuation of space activity.
That dependence makes the specification of future missions a central evidentiary problem. Discussing the need for a sufficiently detailed program, the authors state:
It is our considered opinion that no such firm program of sufficient detail has yet been worked out by NASA.
The admission qualifies the apparent precision of the cost comparisons. Forecasts are necessary inputs, but they are not settled commitments. A transport system with substantial development costs cannot be appraised apart from the volume and composition of its later use. The report’s scenarios thus test conditional investment cases rather than supplying an unconditional prediction of economic success.
The methodological sections also distinguish discounted investment analysis from potentially misleading summary ratios:
The net present value approach is always correct, whereas ratio criteria can lead to difficulties where there are mutually exclusive or otherwise interrelated projects in question, or where capital budget constraints are involved.
Within the report’s framework, the point is to compare alternatives as competing uses of resources. A favorable benefit-cost ratio need not identify the best project when systems exclude one another, share dependencies, or confront a limited capital budget. The public-investment discounting appendix extends this concern to the valuation of expenditures and savings occurring at different times. Development costs and later operating economies must be brought into a consistent comparison, not treated as interchangeable undiscounted totals.
Volume II supplies the operational evidence: Chapter 4 develops mission demand, Chapter 5 compares engineering alternatives, and Chapter 6 examines costs, uncertainty, and reliability. Its decisive conceptual move is to expand the accounting boundary beyond the launch vehicle. The report focuses on the costs of payloads and missions in the projected 1979–1990 operating period, making the transportation system part of a larger production process:
In fact, a Space Shuttle does not appear to be an economic investment when only launch costs are considered.
This is a sharp qualification of a simple cheap-launch rationale. The investment case must include changes in the cost of carrying out missions and providing their payloads, rather than rest solely on lower transportation charges. Engineering comparisons matter economically insofar as their consequences propagate through the whole program. Mission assumptions and payload costs therefore become as important to the conclusion as the estimated expense of the vehicle itself.
Reliability analysis further complicates comparison by treating uncertain outcomes as decision-relevant, rather than merely appending a contingency allowance to an expected cost:
The choice of alternative depends upon the decision maker's aversion to risk.
The report argues that incorporating risk aversion would reinforce its preference for the TAOS system, particularly the TSRM-TAOS configuration. This recommendation is not presented simply as the result of selecting the lowest average estimate. It also concerns how decision makers value exposure to adverse outcomes. The distinction matters for a public program whose development obligations precede uncertain operational savings.
Volume III places these calculations in their wider setting. Chapter 7 examines macroeconomic and interindustry effects, while Chapter 8 synthesizes roughly fifty configuration and scenario analyses. Appendices develop tentative models and document phased life-cycle costs. The broader economic discussion acknowledges unresolved difficulties involving employment, inflation, and corporate profits, and resists making expenditure itself a sufficient justification:
This section does demonstrate that spending effects and employment effects are, in long-term national planning, neither an argument for or against the Space Shuttle development.
The work’s lasting analytical relevance lies in this separation of questions: the value of space missions, the least-cost means of performing them, the treatment of investment risk, and the economy-wide effects of spending. Its qualified recommendation emerges from connecting those questions without conflating them. The Shuttle is evaluated as an infrastructure commitment whose justification depends on an entire future program—and whose numerical results remain accountable to the assumptions used to construct that program.
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