Rent-Seeking, Hierarchy and Centralization: Why the Soviet Union Collapsed So Fast and What it Means for Market Economies

Guinevere Liberty Nell
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Guinevere Liberty Nell: Warwick University, 17 Crossleigh Court, 407B New Cross Road, New Cross, London SE14 6LA, UK

Comparative Economic Studies, 2011, vol. 53, issue 4, 597-620

Abstract: Opening of the archives confirmed that the Soviet Union was a hierarchical economy driven by planning, not a rent-seeking society. Rent-seeking could not govern the classical socialist society because lower-level officials could not trust their superiors to collaborate. Individual incentives would have favored widespread rent-seeking in the absence of punishment, therefore loosening of control during perestroika infused the system with rent-seeking and triggered the collapse of the planned economy. Rent-seeking drives decentralization of a hierarchical economy but centralization of a free economy, suggesting a tipping point between the two systems.

Date: 2011
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