Introduction of Stock Market into Socialist Economy

Jun-won Kang
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Jun-won Kang: POSCO Research Institute

Korean Economic Review, 1996, vol. 11, issue 2, 191-224

Abstract: The decline of communism has shown that the command economy is no longer viable. This realization has given rise to new interest in market socialism. I define a general equilibrium model of a market socialist economy under uncertainty. Every consumer is given shares of firms but is not allowed to trade with others. Instead, each firm is given interfirm shareholdings to trade with other firms. Citizen shares may be distributed according to political considerations to satisfy criterion of justice. By prohibiting individuals from trading their citizen shares, we can avoid concen-tration of shares in a few hands and preserve equality in the distribution of wealth. Through the interfirm trade of shares, every firm's performance can be evaluated; the value of the firm on the stock market can be used to compensate managerial ef-fort and induce managers to work hard.

Date: 1996
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