Working Paper: NBER ID: w3791
Authors: Andrei Shleifer; Robert Vishny
Abstract: We present a new theory of pervasive shortages under socialism, based on the assumption that the planners are self-interested. Because the planners -- meaning bureaucrats in the ministries and managers of firms -- cannot keep the official profits that firms earn, it is in their interest to create shortages of output and to collect bribes from the rationed consumers. Unlike official profits, bribes are not turned over to the state, and so shortages enable the key decision makers who collect them to profit personally. The theory suggests that an increase in the official price of a good might reduce output. The theory also suggests that market socialism is bound to fail even without computational complexities facing the planners.
Keywords: socialism; shortages; bureaucratic behavior; bribes
JEL Codes: D02; H11; P21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Planners' self-interest (P11) | shortages (J23) |
| shortages (J23) | consumers offering bribes (D16) |
| Planners' self-interest (P11) | consumers offering bribes (D16) |
| increase in official prices (P22) | reduction of output (E23) |
| Planners' decisions (R58) | output levels (E23) |