Plan, siphoning, and corruption in the soviet command economy

This paper reconsiders Andrei Shleifer and Robert Vishny’s suggestion that a socialist industry will always prefer to cut both price and output relative to a market– clearing equilibrium in order to maximize bribe income. The evidence from recent archival studies of the Soviet economy does not support this conjecture. To understand the evidence we present an analytical framework within which a plan– setter and an effort–setter interact, subject to a hard resource constraint, to determine real output and hidden inflation simultaneously. We find that managers who use resources gained corruptly were enabled to produce more real output with less hidden inflation and fulfill the plan more honestly as a result. We find clear rationales for plan–setters to have tolerated corruption and siphoning while maintaining plan tension, and we associate reduced plan tension in the 1970s with the spread of disloyal behaviors.