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The traditional view of the relationship between Soviet defense spending and the Soviet economy is that military activity is the priority good, and that the resource-allocation system is geared toward maintaining both high rates of military production and wartime mobilization potential. However, many observers of Mikhail Gorbachev's modernization program are now questioning whether defense activity continues to be the Soviet economy's priority good. To understand the precise interaction between the defense sector and the Soviet economy, it is useful to employ both case studies and economy-wide models that contain defense activity as a key element. This Note examines econometric-trend and optimal-control models against the background of an aggregate model and the foreground of priority models. The author attempts to clarify the role of these models in analyzing the defense sector and the Soviet economy. As one moves from the aggregate model to the econometric-trend models, the structure of the machinery sector is elaborated, forcing the analyst to be sensitive to potentially direct competition between machinery investment and military machinery. The econometric-trend models also help explain the link between gross outputs and final demand. The priority model, based on a historical set of priorities, can also serve as a benchmark should the priority system change.

This report is part of the RAND Corporation Note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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