A Theory of Market Transition: From Redistribution to Markets in State Socialism

Abstract

State socialist redistributive economies are characterized by the allocation and distribution of goods through central planning. This paper develops a theory of market transition which argues that, in reforming socialist economies, the transition from redistributive to market coordination shifts sources of power and privilege to favor direct producers relative to redistributors. The shit improves incentives for direct producers, stimulates the growth of private markets, and provides to entrepreneurs -an alternative path for socioeconomic mobility. A set of hypotheses test the market transition theory with householdand village-level data.