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Growth Slowdown Under Central Planning: A Model of Poor Incentives


  • Zuzana Brixiov??
  • Ale?? Bul??r


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.

Suggested Citation

  • Zuzana Brixiov?? & Ale?? Bul??r, 2002. "Growth Slowdown Under Central Planning: A Model of Poor Incentives," William Davidson Institute Working Papers Series 448, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2002-448

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    References listed on IDEAS

    1. Weitzman, Martin L, 1970. "Soviet Postwar Economic Growth and Capital-Labor Substitution," American Economic Review, American Economic Association, vol. 60(4), pages 676-692, September.
    2. Brada, Josef C., 1978. "Plan execution and the workability of soviet planning," Journal of Comparative Economics, Elsevier, vol. 2(1), pages 65-69, March.
    3. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
    4. 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.
    5. Sapir, Andre, 1980. "Economic Growth and Factor Substitution: What Happened to the Yugoslav Miracle?," Economic Journal, Royal Economic Society, vol. 90(358), pages 294-313, June.
    6. 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.
    7. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, World Bank Group, vol. 9(3), pages 341-371, September.
    8. 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.
    9. Murrell, Peter & Olson, Mancur, 1991. "The devolution of centrally planned economies," Journal of Comparative Economics, Elsevier, vol. 15(2), pages 239-265, June.
    10. Faith, Roger L & Short, Nancy C, 1995. "Bureaucratic Tenure and Economic Performance in Centrally Planned Economies," Public Choice, Springer, vol. 83(1-2), pages 139-157, April.
    11. Dlouhy, Vladimir, 1990. "An equilibrium alternative to a permanent shortage," European Economic Review, Elsevier, vol. 34(2-3), pages 340-348, May.
    12. 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.
    13. 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.
    14. Ales Bulir & Zuzana Brixiova, 2001. "Growth Slowdown in Bureaucratic Economic Systems; An Issue Revisited," IMF Working Papers 01/6, International Monetary Fund.
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    More about this item


    Political Economy; Central planning; incentives; growth;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform

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