This project is directed at developing a better understanding of the nature of some of the basic econonic issues facing centrally planned economies, especially as these issues relate to the transition of these economies to more market.oriented systems. The importance of this research stems from the historical significance of the economic transformation now under way in the communist countries of Eastern Europe, and the need to better understand the salient economic issues involved. This research is primarily an application of economic theory to the area of comparative economic systems, and it will improve our understanding of the economic reform process in three areas. The first application will extend classical consumer theory from the special case of market clearing prices to the more general case of arbitrary prices with search, waiting, and inventory behavior, which are absent in the special case of market clearing. The second study will show why planned economies are usually plagued by shortages of consumer goods. The third application will analyze the conditions under which a mixture of planned and market systems may be much worse than either system alone. This could have important implications for how one gets to a market system without making things much worse during the transition.
