Priority and the shortage model: the medical system in the socialist economy

Abstract

The model of the socialist economy that has been developed by Janos Kornai and his associates reflects the many insights of these economists into the behaviour and interactions of socialist economic institutions (Kornai, 1980, 1982b, 1986; Kapitany et al., Chapter 15; Kemme, 1987 and Chapter 4; Lacko, Chapter 10). Despite its positive features, the shortage model has gaps in coverage and is imprecise in some definitions and specifications of hypotheses. Several of its problems, especially related to the concept of the soft budget constraint, have been noted by critics such as Gomulka (1985), Hare (Chapter 3) and Nuti(Chapter 5). However, neither they nor Kornai have adequately analysed one of the apparent major determinants of sectoral and institutional behaviour and performance in a shortage economy, namely the central decision-makers’ priorities that are expressed during plan formulation and implementation.