The United States defence economy is remarkable for a number of reasons - including sheer size. It receives a significant (albeit decreasing) share of GDP and has a significant international footprint. Its purpose is to provide the resources for national defence - against a set of complex and capable adversaries. The main players in the defence economy are households, and the Federal Government. The associated interactions determine the resources provided for national defence and their allocation among various defence needs. This Element focuses primarily on interactions between government and industrial suppliers within the institutional peculiarities of the defence marketplace. This includes the developments that have determined the course of defence industry consolidation post-Cold War. The authors also highlight the persistent gap between resources available for defence and the means to execute the National Security Strategy. Finally, they offer some tentative thoughts regarding developments likely to shape the defence economy's future.

1. Introduction; 2. Economics of US defense: An Overview; 3. Resources for defense; 4. The defense market: a sovereign monopsony; 5. Defense industrial consolidation post-Cold War; 6. Limits on sovereign monopsony; References.