PLAN EVASION AND SUPPLY INSTABILITY IN A DOUBLE-TRACK SYSTEM

In the reforms of centrally planned economies (CPEs), variants of the double-track system as a transitional measure. While there have been s ome studies of the system from the demand side, little effort has been spent by economists to analyze its consequences from the supply side. This paper is an attempt to do so in a disequilibrium framework. We s how that given a particular form of plan evasion, it is possible for t he planned price to affect output, a result which contrasts with that of a general equilibrium model (Sicular, 1988). Moreover, quantum chan ges in supply could take place, generating instability in the system. The model is extended into a two-product case, where we illustrate tha t supply instability may still take place. Some alleviating factors th at reduce fluctuations are then discussed.