Interaction between central planners and firms: The uncertainty of target adjustment

Conclusions

The interaction between planners and firms in a centrally planned economy has already been treated by a number of authors. They have generally focused upon the firm's performance in the face of various reward structures and have, with the exception of Gindin (1970) and Snowberger (1977), not dealt explicitly with the feed-back effect this performance has on the planners' adjustment of the reward structure for the future. This paper has extended the previous analysis of the feedback mechanism into the case where a firm knows that the planners have the power to make such adjustments but does not know precisely what form they will take. We have developed models which reflect several different ways in which a firm might respond to this uncertainty. Furthermore, we have introduced an adjustment scheme which considers the performance of all firms in the industry when setting a target for any one of them, in addition to treating the ordinary assumption that a firm's future target depends only upon its own present underor overfulfillment.