Shortage economy

However, Kornai concentrated on the role of reduced supply and argued that this was the underlying cause of Eastern European shortages during the 1980s.

Furthermore, the shortages are occasionally replaced by situations of surplus "slack" when too much of a particular good is supplied (often due to the mis-timing of production orders which arrive too late).

In the economies which Kornai studied, this could have involved several hours a day spent in queues just to obtain basic products like food.

Other consumer goods had explicit waiting lists for which potential buyers had to sign up months or even years in advance.

The institutional outcomes involve the so-called soft budget constraint in which production units under a planned economy form expectations of always being bailed out by central authorities, paternalistic behaviour on the part of the planners who blame the shortages on the fact that consumers demand "wrong things" and in macroeconomic terms repressed inflation resulting from pent up demand.