Incentives and control in socialist economies

摘要

This dissertation consists of three theoretical essays concerning existing socialist economies with a focus on the problems of incentives and control.;The first essay develops a theory of state-ownership in socialist economies. Under state-ownership, the state owns and controls the entire capital stock using a single hierarchy of bureaucrats and workers. In our model of the hierarchy, the levels of effort from bureaucrats and workers, the wage scales, the span of control, and in particular, the total number of tiers, are all endogenous. Using the optimal control techniques, we show that in the optimal hierarchy, the wage scales and effort levels decrease as one moves down the hierarchy, with the effort levels decreasing at an increasing rate. As the hierarchy expands with no technological progress, workers exert less effort and are paid less, top bureaucrats work harder and are paid more, and the wage distribution becomes increasingly skewed. The hierarchy may expand without limit, but the economy exhibits decreasing returns to scale due to the limited time the state has for monitoring.;The purpose of the second essay is to explain shortages of consumer goods in socialist economies. The state-bank is unable to make a credible commitment not to refinance projects once some investment costs are sunk (the "soft budget constraint" problem). If a consumer good is also demanded by firms as an input and the seller does not perfectly separate firms from households, the high market-clearing price leads to heavy welfare losses because many bad projects start. Lowering the input/consumer good price has an incentives effect which discourages some bad projects from applying for credit, in addition to the known misallocation effect. We show that the incentive effect may outweigh the misallocation effect and therefore a shortage may result. The price of the input/consumer good serves as a screening device in project selection in the credit market under the soft budget constraint.;The third essay analyzes the impact of egalitarianism on economic efficiency and individual incentives in an economy with infinitely many homogeneous agents under uncertainty. We first show that the socialist state, with an inequality-averse social welfare function based on the agent's ex post utilities, faces a tradeoff between equity and efficiency when the agent's actions are not observable. Next we identify two effects on income distribution by implementing the higher effort levels: In addition to the known adverse effect, there exists another effect coming from a change in the relative size of the different income groups. Therefore, we find possible, although less likely, that effort is over-supplied under egalitarianism relative to the efficient level.