The Grand Experiment of Communism: Discovering the Trade-Off between Equality and Efficiency
University of Lille I - Department of Economics and Management
University of Reading - Department of Economics
University of Bologna - Department of Economics
November 10, 2011
FEEM Working Paper No. 70.2011
This paper aims to explain the rise and fall of communism by exploring the interplay between economic incentives and social preferences transmitted by ideology. We introduce inequality-averse and inefficiency-averse agents and analyze their conflict through the interaction between leaders with economic power and followers with ideological determination. The socioeconomic dynamics of our model generate a pendulum-like switch from markets to a centrally-planned economy abolishing private ownership, and back to restoring market incentives. The grand experiment of communism is thus characterized to have led to the discovery of a trade-o¤ between equality and efficiency at the scale of alternative economic systems. While our focus is on the long-run transitions from capitalism to communism and back observed in the course of the 20-th century, the model also derives conditions under which each of the systems can remain stable.
Number of Pages in PDF File: 31
Keywords: Capitalism, Communism, Inequality, Inefficiency, Ideology Transmission, Economic Transitions
JEL Classification: C72, D31, D63, D74, D83, P51working papers series
Date posted: November 10, 2011 ; Last revised: April 10, 2013
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