The paper outlines the problem of aviation jet propulsion in the interwar period and World War II and analyses Soviet progress towards a solution using newly available archival documentation. Soviet R&D commitments were influenced by long–term security motivations and the need to invest in local tacit knowledge. The scale and diversity of the Soviet R&D effort is described. The allocation of resources resulted from R&D agents’ horizontally organised market–like interactions within a vertically organised command system. Financing decisions were made in a context of asymmetric information, adverse selection, and opportunism. Overall funding was rationed; budget constraints on individual projects were soft, but were periodically hardened. In addition to decisions to finance and refinance or terminate projects, takeovers and mergers took place in a secondary asset market. There is evidence of rent–seeking activity, but where rent–seeking was detected it was punished
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