A Tale of Two Reforms
I identify the absence of well-functioning product markets in transition economies as a sufficient condition under which big bang reduces output initially, while a Chinese-style reform increases output. Big bang dismantles central planning or centralized organization of production, permitting monopolistic and vertically interdependent enterprises to pursue their own monopoly profits by restricting output and inter-firm trade to the detriment of the economy as a whole. The Chinese reform, by maintaining central planning but allowing enterprises to produce for the emerging product markets after they have fulfilled their output quotas under planning, gives enterprises incentives to expand output beyond planned targets.
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Volume (Year): 30 (1999)
Issue (Month): 1 (Spring)
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- Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.