The economics of shortage in the centrally planned economies

  • Paul Hare
Part of the International Studies in Economic Modelling book series (ISIM)


The purpose of this chapter is to introduce, and critically review, an approach to the analysis and interpretation of the Eastern European economies largely based on the work of János Kornai and his colleagues at the Institute of Economics, Budapest. Kornai’s ideas have been maturing since his early research on the behaviour of the centrally planned, socialist economy, based on Hungarian experience in the mid-1950s (Kornai, 1959). The general aim of his research programme since the 1950s has been to develop a conceptual framework for understanding the functioning of the traditional socialist economy. The main finding, a conception which now forms the central maintained hypothesis of Kornai’s school of thought, is that the socialist economy is characterized by endemic and persistent shortage; moreover that this shortage is maintained over time by a variety of mechanisms all grounded in rational behaviour by enterprises, central planners and other agents given their information and expectations, the constraints they experience, and the organizational structures which tie the system together. Some of Kornai’s early work is discussed in section 3.2 of the present chapter, to provide the reader with background information on the development of Kornai’s thinking. Although Kornai’s approach is constantly being developed and refined, both theoretically and through empirical work (some of which is reported later in the book), most of the recent contributions are based on Kornai’s own book, Economics of Shortage (Kornai, 1980).


Socialist Enterprise Socialist Economy Walrasian Equilibrium Capitalist Firm Soft Budget Constraint 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References and Further Reading

  1. Arrow, K. J. (1959) Toward a theory of price adjustment, in The Allocation of Economic Resources (eds M. Abramovitz et al.), Stanford University Press, Stanford.Google Scholar
  2. Arrow, K. J. and Hahn, F. (1971) General Competitive Analysis, Holden Day, San Francisco.Google Scholar
  3. Barro, R. and Grossman, H. (1976) Money, Employment and Inflation, Cambridge University Press, Cambridge.CrossRefGoogle Scholar
  4. Bauer, T. (1981) Tervgazdaság Beruházás, Ciklusok, Közgazdasági és Jogi Könyvkiadó, Budapest.Google Scholar
  5. Debreu, G. (1959) Theory of Value, Cowles Foundation Monograph 17, John Wiley, New York.Google Scholar
  6. Dyker, D. A. (1983) The Process of Investment in the Soviet Union, Cambridge University Press, Cambridge.Google Scholar
  7. Fisher, F. (1984) Disequilibrium Foundations of Equilibrium Economics, Cambridge University Press, Cambridge.Google Scholar
  8. Gomulka, S. (1985) Kornai’s soft budget constraint and the shortage phenomenon: a criticism and restatement. Economics of Planning, 19 (1), 1–11.CrossRefGoogle Scholar
  9. Hahn, F. (1973a) On the Notion of Equilibrium in Economics, Cambridge University Press, Cambridge.Google Scholar
  10. Hahn, F. (1973b) The winter of our discontent. Economica, 40, 322–30.CrossRefGoogle Scholar
  11. Hahn, F. (1982) Money and Inflation, Basil Blackwell, Oxford.Google Scholar
  12. Hare, P. G. (1981) The investment system in Hungary, in Hungary: a Decade of Economic Reform, (eds P. G. Hare, H. K. Radice and N. Swain), Allen and Unwin, London.Google Scholar
  13. Hare, P.G. (1982) Economics of shortage and non-price control (review article). Journal of Comparative Economics, 6, 406–25.CrossRefGoogle Scholar
  14. Hey, J. D. (1982) Review of Economics of Shortage. Economic Journal, 92, 712–3.CrossRefGoogle Scholar
  15. Kirtzner, I. (1973) Competition and Enterpreneurship, University of Chicago Press, Chicago.Google Scholar
  16. Kornai, J. (1959) Over centralisation in Economic Administration, Oxford University Press, Oxford.Google Scholar
  17. Kornai, J. (1970) Anti-equilibrium, North-Holland, Amsterdam.Google Scholar
  18. Kornai, J. (1980) Economics of Shortage, North-Holland, Amsterdam.Google Scholar
  19. Kornai, J. (1982) Growth, Shortage and Efficiency, Basil Blackwell, Oxford.Google Scholar
  20. Kornai, J. (1986) The soft budget constraint. Kyklos, 39 (1), 3–30.CrossRefGoogle Scholar
  21. Kornai, J. and Martos, B., (1981) Non-price Control, Akadémiai Kiadó, Budapest.Google Scholar
  22. Kornai, J. and Matits, A. (1983) A költségvetési korlát puhaságáról vállalati adatok alapján, Gazdaság, 16, 3–30.Google Scholar
  23. Lackó, M. (1986) Feszültségek és normák szerepe a beruházások szabályozásában Magyarorsázágon (1961–1980), MTA Közgazdaságtudományi Intezete, (mimeo) (draft Candidate’s dissertation, to be submitted by end 1986).Google Scholar
  24. Lavoie, D. (1985) Rivalry and Central Planning, Cambridge University Press, Cambridge.Google Scholar
  25. Levine, H. S. (1983) Review of Economics of Shortage. Journal of Economic Literature, 21 (1), 95–8.Google Scholar
  26. Malinvaud, E. (1984) Mass Unemployment, Basil Blackwell, Oxford.Google Scholar
  27. Manove, M. (1973) Non-price rationing of intermediate goods in centrally planned economies. Econometrica, 41 (5), 829–52.CrossRefGoogle Scholar
  28. Matits, A. (1984) A redisztribúció szerepe az állami vállalatok jövedelemezóségének alakulásában: második beszámoló, (mimeo). Ministry of Industry, Budapest.Google Scholar
  29. Muellbauer, J. and Portes, R. (1978) Macroeconomic models with quantity rationing. Economic Journal, 88, 788–821.CrossRefGoogle Scholar
  30. Picard, P. (1983) Inflation and growth in a disequilibrium macroeconomic model. Journal of Economic Theory, 30, 266–95.CrossRefGoogle Scholar
  31. Portes, R. and Winter, D. (1978) The demand for money and for consumption goods in centrally planned economies, Review of Economics and Statistics. 60, 8–18.CrossRefGoogle Scholar
  32. Soós, K.A. (1975) Causes of investment fluctuations in the Hungarian economy. Eastern European Economics, 1975/6, No. 2.Google Scholar
  33. Soós, K. A. (1983) The problem of time lags in the short-term control of macroeconomic processes, Acta Oeconomica, 30 (3–4), 369–80.Google Scholar
  34. Soós, K. A. (1984) A propos the explanation of shortage phenomena: volume of demand and structural inelasticity, Acta Oeconomica, 33 (3–4), 305–20.Google Scholar
  35. Szabó, J. (1985) Inelastic supply, suction, slack and shortage. Közgazdasági Szemle, No. 7–8, pp. 951–60.Google Scholar
  36. Ulph, A. M. and Ulph, D. T. (1975) Transaction costs in general equilibrium theory. Economica, 42, 355–72.CrossRefGoogle Scholar
  37. Weintraub, E. R. (1979) Microfoundations, Cambridge University Press, Cambridge.CrossRefGoogle Scholar
  38. Williamson, O. (1986) Economic Organization, Wheatsheaf Books, Brighton.Google Scholar

Copyright information

© Chapman and Hall Ltd 1989

Authors and Affiliations

  • Paul Hare

There are no affiliations available

Personalised recommendations