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A dynamic model of firm behavior in a planned economy

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This paper presents a dynamic model of the interaction between the planning authority and a firm in a centrally planned economy with emphasis on the firm's decision-making process and its results, given the overall constraints imposed by the planners. For possible relationships between the actual and target levels of output over time, the model offers either the case of an initial period of under-fulfillment followed by a period of overfulfillment or the case of continuous overfulfillment. We have also determined how a firm reacts to the planning authority changing one of its overall constraints (the final target or the length of the time period) or one of the parameters of the firm's bonus function. It is crucial for the planning authority to have a good understanding of what a firm's response to any of these changes will be in order to be able to select an optimal strategy in light of the ultimate goals of the planning mechanism. The results of our paper offer useful insights for this selection process.

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  1. Vinson Snowberger

    Present address: c/o Carl Hunt, 1017 Front Street, 80027, Louisville, CO, USA

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    1. Vinson Snowberger
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    Snowberger, V. A dynamic model of firm behavior in a planned economy. Zeitschr. f. Nationalökonomie 42, 153–160 (1982). https://doi.org/10.1007/BF01293357

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    • DOI: https://doi.org/10.1007/BF01293357

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