Mark Harrison () (Department of Economics, University of Warwick; Centre for Russian and East European Studies, University of Birmingham; and Hoover Institution on War, Revolution, and Peace, Stanford University) Andrei Markevich () (Department of Economics, University of Warwick, and the Center for Economic and Financial Research, New Economic School, Moscow)
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Military market places display obvious inefficiencies under most arrangements, but the Soviet defense market was unusual for its degree of monopoly, exclusive relationships, and intense scrutiny (in its formative years) by a harsh dictator. This provided the setting for quality versus quantity in the delivery of weapons to the government. The paper discusses the power of the industrial contractor over the defense buyer in terms of a hold-up problem. The typical use that the contractor made of this power was to default on quality. The defense ministry’s counter-action took the form of deploying agents through industry with the authority to verify quality and reject substandard goods. The final compromise restored quality at the expense of quantity. Being illicit, it had to be hidden from the dictator.
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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number
w0109.
Find related papers by JEL classification: L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior N4 - Economic History - - Government, War, Law, and Regulation P2 - Economic Systems - - Socialist Systems and Transition Economies
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