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The Grand Experiment of Communism: Discovering the Trade-off between Equality and Efficiency

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  • Etienne Farvaque

    ()

  • Alexander Mihailov

    ()

  • Alireza Naghavi

    ()

Abstract

This paper aims to explain the rise and fall of communism by exploring the interplay between economic incentives and social preferences in different economic systems. We introduce inequality-averse and ine¢ ciency-averse agents responding to economic incentives and transmitting their ideology as they are a¤ected by evolving outcomes. We analyze their conflict through the interaction between leaders with economic power and followers with ideological determination. The socioeconomic dynamics of our model generate a pendulum-like switch from markets to a centrally-planned economy abolishing private ownership, and back to restoring market incentives. The grand experiment of communism is thus characterized to have led to the discovery of a trade-off between equality and efficiency at the scale of alternative economic systems.

Suggested Citation

  • Etienne Farvaque & Alexander Mihailov & Alireza Naghavi, 2011. "The Grand Experiment of Communism: Discovering the Trade-off between Equality and Efficiency," Center for Economic Research (RECent) 066, University of Modena and Reggio E., Dept. of Economics "Marco Biagi".
  • Handle: RePEc:mod:recent:066
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    More about this item

    Keywords

    capitalism; communism; inequality; inefficiency; ideological transmission; economic transitions;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems

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