There have been five characteristics in defense system procurement : uncertainty ; the importance of research and development ; economics of scale in production ; the role of government as a sole purchaser ; and the constant pursuit of improved quality through technological advance. These five factors, occuring simultaneously, create the distinctive regulatory problem of providing incentives for innovation. By using the signaling model of game theory, investment incentives regarding system quality were analyzed. The game environments are like these (1) player : department of defense, firm ; (2) strategy : price and investment quantity(firm), action of buying or not buying system(DoD) ; (3) payoff : profits(firm), expected utility(DoD) ; (4) type : system quality(given to firm by nature). At first, full information nonsignaling equlibrium was solved and analyzed. Second, separating equilibrium(under incomplete information about firm's quality)was solved by maximizing problem of high type's using low type's incentive compatibility constraints. At separating equilibrium, pricing usually tends to be high compared with that of full information equilibrium. But investment incentive may be high or low according to the value of parameters. Of the parameters, marginal cost per unit and degree of technological difficulty was considered seriously. To make a procurement effective, these results must be considered, and the more important thing is activiting the defense industrial by proposing the investment incentive : such as fund of R&D, prizes for innovation, price-based contracts….
