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

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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. (JEL: C72, D31, D63, D74, D83, P51)
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Keywords: communism; economic system transitions; ideology transmission; inefficiency; inequality

Appeared or available online: 16 March 2018

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