Soviet System: Performance and Decline
Comparative Economic Studies (2005) 47, 296–314. doi:10.1057/palgrave.ces.8100110
The Fundamental Problem of Command: Plan and Compliance in a Partially Centralised Economy
- 1Department of Economics, University of Warwick, Coventry CV4 7AL, UK. E-mail: mark.harrison@warwick.ac.uk
- 2Centre for Russian & East European Studies, University of Birmingham, Birmingham B15 2TT, UK
Abstract
When a principal gives an order to an agent and advances resources for its implementation, the temptations for the agent to shirk or steal from the principal rather than comply constitute the fundamental problem of command. Historically, partially centralised command economies enforced compliance in various ways, assisted by nesting the fundamental problem of exchange within that of command. The Soviet economy provides some relevant data. The Soviet command system combined several enforcement mechanisms in an equilibrium that shifted as agents learned and each mechanism's comparative costs and benefits changed. When the conditions for an equilibrium disappeared, the system collapsed.
Keywords:
Soviet economy, central planning, principal–agent problem
JEL Classifications:
N44; P26
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