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Cover of: The Grand Experiment of Communism: Discovering the Trade-Off between Equality and Efficiency
Etienne Farvaque, Alexander Mihailov, Alireza Naghavi

The Grand Experiment of Communism: Discovering the Trade-Off between Equality and Efficiency

Section: Articles
Volume 174 (2018) / Issue 4, pp. 707-742 (36)
Published 09.08.2018
DOI 10.1628/jite-2018-0003
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  • 10.1628/jite-2018-0003
Summary
This paper examines how the interplay between economic incentives and social preferences transmitted by ideology plays a role in the rise and fall of communism. We introduce inequality-averse and inefficiency-averse agents and model their conflict in ideology, triggered by envy. The socioeconomic dynamics generate a pendulum-like switch from markets to a centrally planned economy abolishing private ownership, and back to restoring market incentives. The grand experiment of communism is thus characterized as leading to the discovery of a trade-off between equality and efficiency. The model also derives conditions under which the two systems converge and become stable.