Economic planning for market economies : The optimality of planning in an economy with uncertainty and asymmetrical information

The paper is based on a disequilibrium model which is Keynesian in the ‘short run’, ie with given expectations, but which admits of a continuum of equilibria when expectations are rational. Expectations are adaptive (so that they are rational only in the long run) but can be influenced by an indicative plan. The government and the private sector have differing information sets, each knowing some things the other sector does not (spontaneously) know. It is shown that in this world, an optimal plan dominates a self-fulfilling plan, which in turn dominates a no-planning equilibrium.