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

Author

Listed:
  • Etienne Farvaque

    () (Department of Economics, University of Lille 1)

  • Alexander Mihailov

    () (Department of Economics, University of Reading)

  • Alireza Naghavi

    () (Department of Economics, Unioversity of Bologna)

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 inefficiency-averse agents responding to economic incentives and transmitting their ideology as they are affected 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," Economics & Management Discussion Papers em-dp2011-02, Henley Business School, Reading University.
  • Handle: RePEc:rdg:emxxdp:em-dp2011-02
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    File URL: http://www.reading.ac.uk/web/FILES/economics/emdp2011090.pdf
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    References listed on IDEAS

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    1. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
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    4. Christopher J. Ellis & John Fender, 2011. "Information Cascades and Revolutionary Regime Transitions," Economic Journal, Royal Economic Society, vol. 121(553), pages 763-792, June.
    5. Masahiko Aoki, 2013. "Institutions as cognitive media between strategic interactions and individual beliefs," Chapters,in: Comparative Institutional Analysis, chapter 17, pages 298-312 Edward Elgar Publishing.
    6. Matthias Doepke & Fabrizio Zilibotti, 2008. "Occupational Choice and the Spirit of Capitalism," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 747-793.
    7. Roemer, John E, 1985. "Rationalizing Revolutionary Ideology," Econometrica, Econometric Society, vol. 53(1), pages 85-108, January.
    8. Abram Bergson, 1991. "The USSR before the Fall: How Poor and Why," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 29-44, Fall.
    9. Broadberry, Stephen & Klein, Alexander, 2011. "When and why did eastern European economies begin to fail? Lessons from a Czechoslovak/UK productivity comparison, 1921-1991," Explorations in Economic History, Elsevier, vol. 48(1), pages 37-52, January.
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    Cited by:

    1. Davide Ticchi & Thierry Verdier & Andrea Vindigni, 2013. "Democracy, Dictatorship and the Cultural Transmission of Political Values," Carlo Alberto Notebooks 300, Collegio Carlo Alberto.

    More about this item

    Keywords

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

    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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