The Fundamental Problem of Command: Plan and Compliance in a Partially Centralised Economy

When a principal gives an order to an agent and advances resources for its implementation, the temptations for the agent to shirk or steal from the principal rather than comply constitute the fundamental problem of command. Historically, partially centralised command economies enforced compliance in various ways, assisted by nesting the fundamental problem of exchange within that of command. The Soviet economy provides some relevant data. The Soviet command system combined several enforcement mechanisms in an equilibrium that shifted as agents learned and each mechanism's comparative costs and benefits changed. When the conditions for an equilibrium disappeared, the system collapsed. Comparative Economic Studies (2005) 47, 296–314. doi:10.1057/palgrave.ces.8100110