The Grand Experiment of Communism: Discovering the Trade-off between Equality and Efficiency

This paper aims to explain the rise and fall of communism by exploring the interplay between economic incentives and social preferences in di§erent economic systems. We introduce inequality-averse and ine¢ ciency-averse agents responding to economic incentives and transmitting their ideology as they are a§ected by evolving outcomes. We analyze their conáict through the interaction between leaders with economic power and followers with ideological determination. The socioeconomic dynamics of our model generate a pendulum-like switch from markets to a centrally-planned economy abolishing private ownership, and back to restoring market incentives. The grand experiment of communism is thus characterized to have led to the discovery of a trade-o§ between equality and e¢ ciency at the scale of alternative economic systems.