Reform economics and western economic theory: Unexploited opportunities

The theory of economic reforms in Soviet Union and Eastern Europe did not follow the development of western economic theory. Although the fundamental economic issues are different in the West and in the East (employment and inflation versus shortages and lack of technological progress) the reform economics is concerned with the optimal mix of centralisation and decentralisation, of market and hierarchy, of autonomy and control, and-more recently-of public and private. All these issues have been extensively treated in western economic literature. This paper overviews those fields in contemporary economics which could offer the East European reformers an enlightening perspective and useful tools in their search for a new institutional solution. Four such fields are presented: comparative economic systems, theory of incentives, literature stressing relative costs and benefits of different institutional solutions and comparing market and nonmarket failures, and the theory of property rights.