SFB 303 Discussion Paper No. A - 335

Author: Corneo, Giacomo G.
Title: Discrimination as a Solution to the Productivity / Full Employment Dilemma in a Soviet-Type Economy
Abstract: This paper provides an application of the shirking model of the efficiency-wage theory to the case of soviet-type economies (STEs). In that economic system unemployment cannot be utilized as a "worker discipline device". Thus, a simple overlapping generation model is presented, in which managers can elicit workers' effort through discrimination and promotion inside the firms. The role of various factors on this incentive mechanism is investigated. In this respect, the superior efficiency of a reformed over a traditional STE is established.
Keywords: Centralized Planning, Internal Labor Markets, Efficiency Wages
JEL-Classification-Number: 052, 053, 825
Creation-Date: April 1991
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