What do economists think of the Lange model? Does it address the economic calculation problem?

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Hello!

1) What do economists think of the Lange model: https://blogs.cornell.edu/info2040/2015/10/19/the-lange-model-of-socialism/? Does it adequately address the economic calculation problem? Tying into this question, is is true that Robin Cox is thought to have won the debate around the ECP? Or was it Mises, Hayek, or James Scott?

2) Finally, I would appreciate any insight toward this economic system: Instead of prices, it uses calculation in kind. It accomplishes this by decentralizing economic decision-making, by means of turning firms into self-managed associations joined in horizontal federations, which assess how much is taken at distribution centers by means of book-keeping and assess how many physical quantities of the goods they particularly use are required. I know this is a bit brief, but the part of this comment that explains this further starts with "But now, there is still a question to answer, how could an economy not based in prices make rational decisions" (it's toward the end).": https://www.reddit.com/r/CapitalismVSocialism/comments/4ib76d/automation....

Any insight would be greatly appreciated!

Answer: 

1.  A mainstream neoclassical synthesis economist would say that this system can be doable but it has what we would call a lot of incentive compatibility problems. It is not only the fact that the government needs to be accurate in timing and in calculation about when and in which market there will be a shortage (which itself is already probably slow, costly and might be inefficient compared to a pure market allocation) but is also that if I understand properly, the government sets the producer sector to adjust based on the measures they have on shortage. This needs to be done, to be done properly, with incentive compatibility constraints (i.e., the situation has to be such that the producer wants to act in this way also according with government objectives). If this doesn't happen, then it can be similar to quotas and price controls...there is always the possibility of efficiency losses and also the appearance of black markets. 

2. I think if you take the mainstream economist idea, individuals and firms are always rational. Based on this, I would guess that the question they are trying to ask is how can individuals and firms be optimizer and take the best decisions they can without prices. And that, is actually a good question. The price in the mainstream economist view is more like a sufficient statistic. It contains all the information one needs to take proper choices. Without that...we could think in modes like the ones the USSR use to have. But they can proven to be highly inefficient. 

It seems to me that the Lange idea is in a way a socialist model but allowing for some sort of pricing in the economy but still this prices are highly influenced by the government decisions (for example, prioritizing stocks by the proper book-keeping, etc.) and not by the firms just acting as firms that maximize profits. The information these prices contain is not entirely easy to understand. In that way the only way it seems to me that an economic system would be in the first best is if the central government has all the information, a lot of resources, is not selfish, and truly prioritizes well being. 

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Last updated on October 14, 2020