SHORTAGES AMID PLENTY UNDER SOVIET-TYPE PLANNING - A THEORY OF UNRELIABLE SUPPLIES

It is well known that one of the most distinctive and dysfunctional features of the Soviet-type economic system is the chronic unreliability of input supplies. It has also been noted that, somewhat paradoxically, this kind of frequent firm-level shortage of inputs can coexist with a surplus in the aggregate production of the inputs. In this paper we propose a simple model that suggests why Soviet-type economies find it so difficult to control the variability of input supplies. We also show that, given this loss of control over variability, for a range of cases, the outcome of the social planner's optimization problem for such economies will be input supplies that have both a higher mean and a higher variance than the first best level. © 1992.