The incentive effects of plan targets and priorities in a disaggregated model

Most models of the Soviet firm assume that it produces just one output. These models are unsuited for studying the effects of taut planning on the product mix. The objective of the firm's manager in the present two-product model is to obtain a bonus that is conditional upon the fulfillment of stochastic final targets affected by priorities as well as by the initial target. The main result is that an increase in tautness, i.e., an increase in the targets, has an expansion and a substitution effect. While the former will usually increase output in the desired direction, the latter will deflect it away from the desired mix.