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Revision as of 16:10, 6 December 2005 by Fephisto (talk | contribs) (Added a bit more to make it less stubby.)(diff) ← Previous revision | Latest revision (diff) | Newer revision → (diff)In a command economy, the government controls all levels of its economy. This is typically through high government expenditures on the part of GDP and heavy regulation. This has some advantages determined by Game Theory in that nearly all economic externalities and economic 'Prisoners' Dillemas' can be avoided with a correctly oriented command economy.
Free market advocates such as Milton Friedman have criticized the command economy on the grounds that centralized planning ignores the price signal and is therefore ineffective. In a similar manner, the idea of a command economy has been criticized because of inherently large transaction costs associated with costs of distribution. A good example is the Soviet Union which suffered many shortages and inefficiencies due to bureaucratic oversight and neglect. This idea may be attributed to Ronald Coase who predicted the downfall of the Soviet Union because of insurmountable transaction costs.