Initial Economic Studies

NASA from the time it received the BOB letter asking for a study of shuttle economics had planned to have that study carried out by an outside con­tractor with impeccable economic credentials. Tom Paine decided that “no one would believe NASA’s results.” There was, however, an interim in-house NASA study managed by Robert Lindley of the Office of Manned Space Flight. Lindley had been one of the first people within NASA to suggest that “payload effects”—the cost savings from reusing or repairing satellites and initially designing them for the less demanding characteristics of a shuttle launch—might be as important a benefit from shuttle development as lower launch costs. In terms of overall space program costs, payload development accounted for 80 percent of total costs; launch, only 20 percent, and thus lowering payload costs could have a greater impact than lowering launch costs. Lindley’s study produced positive results, but Paine was correct. It had little credibility when it was submitted to the new Office of Management and Budget (OMB) in August 1970.

NASA selected Mathematica, Inc. of Princeton, NJ to lead an indepen­dent study of shuttle economics. Mathematica had been founded by presti­gious economist Oskar Morgenstern of the Institute for Advanced Studies; there he had worked with mathematician John von Neumann to develop game theory, an approach to analyzing situations in which actors with con­flicting interests pursue independent courses of action. Morgenstern had founded Mathematica to pursue practical applications of this approach. At

Mathematica, a young Austrian-born economist named Klaus Heiss was put in charge of the space shuttle study. Mathematica was supported in its analytic efforts by the Aerospace Corporation, which developed various mission and cost models, and Lockheed, which performed technical analy­ses of payload effects. The first meeting among Mathematica, NASA, and OMB took place on July 9, 1970; the firm’s contract was for an 11-month study to be completed at the same time as the shuttle Phase B studies in June 1971.36