Economic Growth under a Self-Interested Central Planner and Transition to a Market Economy

Abstract

The Soviet-type economy is modeled as a self-interested planner maximizing a discounted stream of unproductive state consumption. Consumption is provided to workers in order to elicit labor supply, and the state is a monopsonist in the labor market. Comparison of this model's steady state with that of the Ramsey–Cass model provides insights into the longer-run consequences of transition. Two types of effects are identified: supply-side effects that increase output through elimination of deadweight losses and a preference-shift effect associated with the difference between state and household discount rates. The model is also used to explain the Soviet growth experience during 1929–1991, in particular the Stalinist industrialization drive and the postwar growth slowdown.J. Comp. Econom.,April 1997,24(2), pp. 121–139. University of Miami, Coral Gables, Florida 33124; and Rutgers University, Newark, New Jersey 07102.