Decentralized Economic Planning

Abstract

Entrepreneurs conduct economic activities that are finalized to the achievement of their individual objectives and interest. When the objectives of different — but interrelated — economic agents diverge, conflicts arise. Sometimes, the marketplace can mediate these conflicts through largely unconscious and seemingly haphazard efforts, especially when those interests are held with mild intensity. Often, conflicts must be mediated by an explicit agreement among the various actors who may delegate to a higher authority the task of resolving them. More often, finally, a higher (legal) authority assumes the responsibility of imposing on its subjects the resolution of conflicts. Consider a large corporation organized into various departments: procurement, production, marketing, financial, R & D, and personnel. All department managers are usually told to establish departmental goals of performance in their own interest and that of the department and are aware that they must compete with the other managers in the allocation of the corporation’s resources. In this situation, conflicts inevitably arise and the board of directors (or its chair) will act as a final decision maker in the interest of the corporation as a whole.