The visible hands,quantity targets as coaxing tools

Planning is studied in a two-tier environment motivated by Soviet economic reforms. The center's goal is ex post balancing of demand and supply of funded commodities after one informational exchange period. Firm managers make production decisions to maximize a combination of current profit and output adjusted for penalties when quantity directives are not fulfilled. After judiciously differentiating incentive structures, the center manipulates quantity targets to coax production decisions satisfying its balancing objective. A taxonomy of target misspecifications is developed. Traditional concerns of ex ante consistency and feasibility of production plans are shown to be less important in the new environment.