Soviet incentives

Soviet economy, by Eric S. Weisman, Former Assistant to the US. Executive Director, International Monetary fund

In: "Some Comments upon the Retirement of Professor Vladimir G. Treml", Duke University, Economics Dept, Fall 2001


Vlad loves to tell stories of how perverse incentive structures in the Soviet Union led to seemingly bizarre, but in fact entirely rational, economic decision-making. The story I like the best is the one about the used light bulb market. For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.