Pervasive Shortages Under Socialism

21 Pages Posted: 10 Jul 2007 Last revised: 28 Mar 2010

See all articles by Andrei Shleifer

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Date Written: July 1991

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.

Suggested Citation

Shleifer, Andrei and Vishny, Robert W., Pervasive Shortages Under Socialism (July 1991). NBER Working Paper No. w3791. Available at SSRN: https://ssrn.com/abstract=383800

Andrei Shleifer (Contact Author)

Harvard University - Department of Economics ( email )

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HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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Robert W. Vishny

University of Chicago - Booth School of Business ( email )

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United States
312-702-2522 (Phone)
312-702-0118 (Fax)

National Bureau of Economic Research (NBER)

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United States

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