IMHO, the late Marty Weitzman's finest work. I would give a testicle or equivalent value to have written this:
Marty Weitzman: Prices vs. Quantities https://delong.typepad.com/prices-vs-quantities.pdf: "There is, it seems to me, a rather fundamental reason to believe that quantities are better signals for situations demanding a high degree of coordination. A classical example would be the short run production planning of intermediate industrial materials. Within a large production organization, be it the General Motors Corporation or the Soviet industrial sector as a whole, the need for balancing the output of any intermediate commodity whose production is relatively specialized to this organization and which cannot be effortlessly and instantaneously imported from or exported to a perfectly competitive outside world puts a kink in the benefit function. If it turns out that production of ball bearings of a certain specialized kind (plus reserves) falls short of anticipated internal consumption, far more than the value of the unproduced bearings can be lost. Factors of production and materials that were destined to be combined with the ball bearings and with commodities containing them in higher stages of production must stand idle and are prevented from adding value all along the line. If on the other hand more bearings are produced than were contemplated being consumed, the excess cannot be used immediately and will only go into storage to lose implicit interest over time. Such short run rigidity is essentially due to the limited substitutability, fixed coefficients nature of a technology based on machinery. Other things being equal, the asymmetry between the effects of overproducing and underproducing are more pronounced the further removed from final use is the commodity and the more difficult it is to substitute alternative slack resources or to quickly replenish supplies by emergency imports. The resulting strong curvature in benefits around the planned consumption levels of intermediate materials tends to create a very high comparative advantage for quantity instruments. If this is combined with a cost function that is nearly linear in the relevant range, the advantage of the quantity mode is doubly compounded...
#noted #socialism #notebookslouching #notebookecon135 #2019-10-30
