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Planning under Incomplete Information and the Ratchet Effect
Abstract
Central planning of production is usually performed under asymmetric information which leads to use of an incentive scheme. As the planner revises the scheme over time to take into account information provided by the firm's performance, this induces firms to underproduce to avoid more demanding schedules in the future—the ratchet effect. This paper explores this phenomenon under the realistic assumption that the planner cannot commit himself to a revision procedure. We show that the ratchet effect exists, in the sense that the planner may choose a scheme which is suboptimal from a static viewpoint in order to induce revelation, with the marginal price of output exceeding its optimal static value.
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Citations
Cited by
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Petit, N., & Teece, D. J. (2021) · Industrial and Corporate Change · doi:10.1093/icc/dtab049 · Cited by 109
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Puller, S. L. (2006) · Journal of Environmental Economics and Management · doi:10.1016/j.jeem.2006.07.002 · Cited by 105
Fintech for the Poor: Financial Intermediation Without Discrimination
Tantri, P. (2021) · Review of Finance · doi:10.1093/rof/rfaa039 · Cited by 94
Metadata
- Authors
- Freixas, X., Guesnerie, R., & Tirole, J.
- Venue
- The Review of Economic Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1985-04
- Volume
- 52
- Issue
- 2
- Pages
- 173
- ISSN
- 0034-6527 (ISSN-L)
- OpenAlex
- W2060441137
- Cited by
- 517
- References
- 0
- FWCI
- 14.77
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: Planning under Incomplete Information and the Ratchet Effect. https://app.cochat.ai/papers/10.2307/2297615
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- Freixas, X., Guesnerie, R., & Tirole, J. (1985). Planning under Incomplete Information and the Ratchet Effect. The Review of Economic Studies. https://doi.org/10.2307/2297615
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
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