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Can Neoclassical Economics Underpin the Reform of Centrally Planned Economies?

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  • Peter Murrell

Abstract

This paper addresses whether neoclassical economics can provide the intellectual underpinning for a theory of reform. I examine whether the neoclassical model satisfies an essential condition to qualify for this role: does it give us a satisfactory explanation for the vast differences in performance between capitalist and socialist economic systems? First, I focus on the theoretical arguments that have traditionally been used to examine the comparative properties of central planning and markets. I show that developments within theory over the last 20 years have substantially changed the tone of these arguments, making their message more equivocal. Next I discuss empirical evidence, but of a particular sort. Much research shows that centrally planned economies perform less well than market economies; but few studies test whether the superiority of market economies appears within empirical models derived using the framework of basic neoclassical economics. Those studies are the relevant ones for the present exercise. The central conclusion is that economists must look outside the standard models of competition, the focus on Pareto-efficient resource allocation, and the welfare theorems to build a theory of reform.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.5.4.59
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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 5 (1991)
Issue (Month): 4 (Fall)
Pages: 59-76

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Handle: RePEc:aea:jecper:v:5:y:1991:i:4:p:59-76

Note: DOI: 10.1257/jep.5.4.59
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  1. Kumbhakar, Subal C, 1987. "Production Frontiers and Panel Data: An Application to U.S. Class 1 Railroads," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 249-55, April.
  2. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  3. Sah, Raaj Kumar & Stiglitz, Joseph E, 1988. "Committees, Hierarchies and Polyarchies," Economic Journal, Royal Economic Society, vol. 98(391), pages 451-70, June.
  4. Novshek, William & Sonnenschein, Hugo, 1987. "General Equilibrium with Free Entry: A Synthetic Approach to the Theory of Perfect Competition," Journal of Economic Literature, American Economic Association, vol. 25(3), pages 1281-1306, September.
  5. Thornton, Judith, 1971. "Differential Capital Charges and Resource Allocation in Soviet Industry," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 545-61, May-June.
  6. Desai, Padma & Martin, Ricardo, 1983. "Efficiency Loss from Resource Misallocation in Soviet Industry," The Quarterly Journal of Economics, MIT Press, vol. 98(3), pages 441-56, August.
  7. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  8. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
  9. Whalley, John, 1976. "Thornton's Estimates of Efficiency Losses in Soviet Industry: Some Fixed-Point-Method Recalculations," Journal of Political Economy, University of Chicago Press, vol. 84(1), pages 153-59, February.
  10. Richard R. Nelson, 1981. "Assessing Private Enterprise: An Exegesis of Tangled Doctrine," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 93-111, Spring.
  11. Kornai, Janos, 1990. "The Affinity between Ownership Forms and Coordination Mechanisms: The Common Experience of Reform in Socialist Countries," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 131-47, Summer.
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Cited by:
  1. Goodhue, Rachael E. & Rausser, Gordon C. & Simon, Leo K., 1996. "Privatization, market liberalization and learning in transition economies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6vw536q0, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Turhan, Ibrahim M., 2008. "Why did it work this time: a comparative analysis of transformation of Turkish economy after 2002," MPRA Paper 31158, University Library of Munich, Germany.
  3. Burawoy, Michael, 1996. "The state and economic involution: Russia through a China lens," World Development, Elsevier, vol. 24(6), pages 1105-1117, June.
  4. Bohle, Dorothee, 1999. "Der Pfad in die Abhängigkeit? Eine kritische Bewertung institutionalistischer Beiträge in der Transformationsdebatte," Discussion Papers, Research Unit: Organization and Employment FS I 99-103, Social Science Research Center Berlin (WZB).
  5. Yifu, Justin & Wang, Yan, 2009. "China's Integration with the World: Development as a Process of Learning and Industrial Upgrading," Policy Research Working Paper Series 4799, The World Bank.
  6. Esben Bergmann Schjødt & Gert Tinggard Svendssen, 2002. "Transition to Market Economy in Eastern Europe: Interest Groups and Political Institutions in Russia," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 28, pages 181-194.
  7. C. Hsiao & P. Chen, 2005. "The Transition Process in China: a Theoretical and Empirical Study," Computing in Economics and Finance 2005 210, Society for Computational Economics.
  8. Brigitte Granville & Judith Shapiro, 2008. "Scratch a Would-Be Planner: Robbins, Neoclassical Economics and the End of Socialism," Working Papers 11, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.
  9. Gilli, Mario & Li, Yuan, 2012. "Citizenry Accountability in Autocracies. The Political Economy of Good Governance in China," NEPS Working Papers 3/2012, Network of European Peace Scientists.
  10. Hanisch, Markus & Beckmann, Volker & Boger, Silke & Brem, Markus, 2002. "In Search of the Market: Lessons from Analyzing Agricultural Transition in Central and Eastern Europe," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 24800, European Association of Agricultural Economists.
  11. John Tomer, 2002. "Intangible Factors in the Eastern European Transition: A Socio-Economic Analysis," Post-Communist Economies, Taylor & Francis Journals, vol. 14(4), pages 421-444.
  12. Wyrwich, Michael, 2013. "Can socioeconomic heritage produce a lost generation with regard to entrepreneurship?," Journal of Business Venturing, Elsevier, vol. 28(5), pages 667-682.

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