Economic Optimization and Technical Efficiency in Russian Enterprises Jointly Regulated by Profits and State Incentives

Abstract

Western analysts have seriously misforecast Russia's economic transition. They believed that privatized post-Soviet firms operating in a liberal environment would quickly prosper by becoming responsive to market demand, and economizing costs as reguired by the logic of profit maximization. Little attention was paid to the institutional setting on the tacit assumption that market forces would bring about the requistite adaptations. 
This paper attempts to assess why the efficiency of the self regulating economic system emerging in Russia hasn't yet risen to the western capitalist norm by examining contemporary Russian institutional arrangements in Soviet perspective. It will be shown that while the incentives and constraints which conditioned Soviet enterprise bonus maximization have changed, the warped logic and culture of administrative optimization claborated nearly a decade ago in Steven Rosefielde and R.W. Pfouts, "Economic Optimization and Technical Efficiency in Soviet Enterprises Jointly Regulated by Plans and Incentives". European Economic Review. Vol. 32, № 6, 1988, pp. 1285-1299, remains intact.