Priority, Duality, and Penetration in the Soviet Command Economy

This Note analyzes characteristics of the Soviet economy that are underemphasized in existing macroeconomic models of the Soviet Union. The structure of the new models developed reflects, in simplified form, the planned dual nature of the Soviet economy in terms of priority and nonpriority sectors, allocational and technological rigidities, and the effect of priority in determining the response to shocks during plan implementation. Some empirically verifiable implications that do not emerge in standard macroeconomic models stem from this analysis: (1) the variance of output (plan fulfillment) is greater in nonpriority than in priority sectors; (2) there is more excess capacity in priority sectors; (3) priority factor/input use proportions are unrelated to economy-wide tradeoffs; (4) inputs into priority sectors are protected from fluctuations in economic activity; and (5) factor productivity is lower in priority sectors, perhaps because of flexibility considerations.