This study investigates the use of the transaction cost paradigm, as a framework, for evaluating defense contracts and exploring problems related to defense contracting. The study shows that defense contracting is beleaguered with bounded rationality and uncertainty problems, and furthermore, that bounded rationality and uncertainty can lead to opportunistic behavior within defense contracting. The study shows, in particular that adverse selection, moral hazard, and hold-up problems exist within defense contracting. Based on the results of this study the transaction cost paradigm can be used as a framework for evaluating defense contracts and related problems. The results also indicate that hold-up problems and moral hazard problems may be minimized by using proper contracts or acquisition strategies. Based on the case study in Chapter III there does not appear to be a contractual solution to adverse selection problems. / Master of Arts