Quantity Versus Quality in the Soviet Market for Weapons
22 Pages Posted: 19 Jul 2010
Date Written: November 12, 2007
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.
Keywords: Contracts, Dictatorship, Hold-Up Problem, Soviet Economy
JEL Classification: L2, N4, P2
Suggested Citation: Suggested Citation