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Growth Slowdown Under Central Planning: A Model of Poor Incentives

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  • Zuzana Brixiová
  • Aleš Bulír

Abstract

Centrally planned economies tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how planned economies can end up in a low-effort, low-output equilibrium even though they may have started in a high-effort, high-output equilibrium.

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File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp448.pdf
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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 448.

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Length: pages
Date of creation: 01 Mar 2002
Date of revision:
Handle: RePEc:wdi:papers:2002-448

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Keywords: Political Economy; Central planning; incentives; growth;

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  1. Leamer, Edward E. & Taylor, Mark P., 1999. "Estimating growth equations for previously centrally planned economies: Dealing with dubious data and disparate information," Journal of Macroeconomics, Elsevier, vol. 21(4), pages 639-671.
  2. Banerjee, Abhuit V. & Spagat, Michael, 1991. "Productivity paralysis and the complexity problem: Why do centrally planned economies become prematurely gray?," Journal of Comparative Economics, Elsevier, vol. 15(4), pages 646-660, December.
  3. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, World Bank Group, vol. 9(3), pages 341-71, September.
  4. Dlouhy, Vladimir, 1990. "An equilibrium alternative to a permanent shortage," European Economic Review, Elsevier, vol. 34(2-3), pages 340-348, May.
  5. Murrell, Peter & Olson, Mancur, 1991. "The devolution of centrally planned economies," Journal of Comparative Economics, Elsevier, vol. 15(2), pages 239-265, June.
  6. André Sapir, 1980. "Economic growth and factor substitution: what happened to the Yugoslav miracle?," ULB Institutional Repository 2013/8294, ULB -- Universite Libre de Bruxelles.
  7. Banerjee, Abhijit V. & Spagat, Michael, 1992. "Shortages amid plenty under Soviet-type planning: A theory of unreliable supplies," Journal of Comparative Economics, Elsevier, vol. 16(2), pages 302-308, June.
  8. Ickes, Barry W, 1990. "Do Socialist Countries Suffer a Common Business Cycle?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 397-405, August.
  9. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 173-91, April.
  10. Weitzman, Martin L, 1970. "Soviet Postwar Economic Growth and Capital-Labor Substitution," American Economic Review, American Economic Association, vol. 60(4), pages 676-92, September.
  11. Faith, Roger L & Short, Nancy C, 1995. " Bureaucratic Tenure and Economic Performance in Centrally Planned Economies," Public Choice, Springer, vol. 83(1-2), pages 139-57, April.
  12. Alexeev, Michael, 1991. "The 'storming' pattern of enterprise behavior in a centrally planned economy," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 173-185, March.
  13. Ales Bulir & Zuzana Brixiova, 2001. "Growth Slowdown in Bureaucratic Economic Systems," IMF Working Papers 01/6, International Monetary Fund.
  14. Brada, Josef C., 1978. "Plan execution and the workability of soviet planning," Journal of Comparative Economics, Elsevier, vol. 2(1), pages 65-69, March.
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