(Shleifer and Vishny 1992) Pervasive shortages under socialism

Shleifer, Andrei; Vishny, Robert. Pervasive shortages under socialism. RAND Journal of Economics. 1992 Summer; 23(2):237–246. Available from: http://www.economics.harvard.edu/faculty/shleifer/files/pervasive_shortages.pdf. Accessed 2012 Jan 31. Archived by WebCite at http://www.webcitation.org/6577P5JXK.

Shleifer and Vishny argue that shortages of consumer goods arise under market socialism because of self-interested behavior on the part of bureaucratic managers who control production. In a typical market-socialist economy, marginal income from manipulation of production arises primarily from bribes taken for illicit access to scarce goods and services, and is proportional to the difference between their fixed official price and the market-clearing price. Thus, rent-seeking motives induce bureaucrats to maximize this difference, which is accomplished by keeping fixed official prices as low as possible, while restricting production quantity so as to maximize the market-clearing price. Shleifer and Vishny conclude that pervasive shortages are a predictable consequence of market socialism, and are due principally to corruption, rather than to classical explanatory factors such as impaired price equilibration. Implicitly, they conclude further that market socialism is unworkable. While this conclusion is premature, their argument is otherwise compelling, and poses a serious problem that must be addressed if market socialism is to be viable.


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