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. © 1997 Academic Press.