Vipul: /* Knowledge and incentives */

2011-11-18T01:59:33Z

Knowledge and incentives

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	{\| class="sortable" border="1"		{\| class="sortable" border="1"
	! What the focus is on !! Corresponding argument ~~for why~~ a [[market economy]] !! Corresponding argument against [[central planning]]		! What the focus is on !! Corresponding argument supporting a [[market economy]] !! Corresponding argument against [[central planning]]
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	\| Knowledge \|\| individual market actors use [[local knowledge]] and this is coordinated among multiple actors by means of the [[price mechanism]] \|\| the [[economic calculation problem]]: it is impossible for a single actor to gather all the information necessary to allocate resources rationally across the economy.		\| Knowledge \|\| individual market actors use [[local knowledge]] and this is coordinated among multiple actors by means of the [[price mechanism]] \|\| the [[economic calculation problem]]: it is impossible for a single actor to gather all the information necessary to allocate resources rationally across the economy.

Vipul: Created page with "==Definition== ===As a problem=== The '''economic calculation problem''' refers to the problem of ''determining'' how resources are to be allocated to productive uses in an eco..."

2011-11-18T01:57:24Z

Created page with "==Definition== ===As a problem=== The '''economic calculation problem''' refers to the problem of ''determining'' how resources are to be allocated to productive uses in an eco..."

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==Definition==

===As a problem===

The '''economic calculation problem''' refers to the problem of ''determining'' how resources are to be allocated to productive uses in an economy.

===Usual meaning as a criticism of central planning===

The term '''economic calculation problem''' is typically used as a critique of [[central planning]], i.e., the planning or direction of a large economy by a central actor (such as the government of a nation-state). The critique was first made by [[Ludwig von Mises]] and then elaborated on by [[Friedrich von Hayek]], and it is a key ingredient of the [[Austrian school of economics]].

Mises, Hayek, and others argued that the problem of resource allocation is solved in a [[market economy]] by means of the [[price mechanism]], where a multitude of actors make use of their [[local knowledge]] and generate a [[spontaneous order]].

==Knowledge and incentives==

The economic calculation problem, viewed as a critique of central planning, focuses on the ''knowledge'' aspect: the argument is that it is impossible for a single actor to capture all the knowledge necessary to decide how to allocated resources rationally in the economy. There is a related critique based on incentives:

{| class="sortable" border="1"
! What the focus is on !! Corresponding argument for why a [[market economy]] !! Corresponding argument against [[central planning]]
|-
| Knowledge || individual market actors use [[local knowledge]] and this is coordinated among multiple actors by means of the [[price mechanism]] || the [[economic calculation problem]]: it is impossible for a single actor to gather all the information necessary to allocate resources rationally across the economy.
|-
| Incentives || [[invisible hand]]: a market economy helps channel each individual's pursuit of self-interest to socially beneficial activities and outcomes, through the [[price mechanism]] (see [[market price]] for the interaction of supply and demand) || [[public choice economics]] (a branch of [[political economy]]): the incentives that government actors may lead them to act in self-interested ways that are not socially beneficial.
|}

Economic calculation problem - Revision history

Vipul: /* Knowledge and incentives */

Vipul: Created page with "==Definition== ===As a problem=== The '''economic calculation problem''' refers to the problem of ''determining'' how resources are to be allocated to productive uses in an eco..."