Planning Under Incomplete Information and the Ratchet Effect.
Abstract
Central Planning of production is usually performed under asymmetric information. The firm in general has more information about its productive possibilities than the Central Planner (from now on for short CP). This justifies the use of incentives schemes in which the CP does not directly fix activity levels. Casual observation of such existing schemes suggests that the time dimensions is crucial for their working. Typically the CP revises the incentive scheme over time to take into account the information provided by the firm's performance. Managers of centrally planned economies as well as economists have long recognized that this revision induces firms to underproduce in order to avoid demanding schemes in the future. This is the ratchet effect. It is purpose of the present paper to study the ratchet effect under the non-commitment assumption, which we believe to be more realistic, The inadequacy of conceptual tools made if difficult in the past to consider such an assumption. Now basic research on dynamic games with incomplete information recently resulted in new ideas which look particularly relevant for a theoretical analysis of the problem.
Document Details
- Document Type
- Technical Report
- Publication Date
- Jun 01, 1983
- Accession Number
- ADA131638
Entities
People
- Jean Tirole
- Roger Guesnerie
- Xavier Freixas
Organizations
- Stanford University