Product Quality Level as an Economic Regulator

S.M.Guriev, I.G.Pospelov

It is well-known that an economic system with fixed prices does not provide incentives for high quality. We consider a mechanism of setting the quality level in such an economy. We consider the interaction of economic agents both in the closed production system and within an individual link "supplier-consumer". We show that the quality level can be a flexible variable which changes to make up for shortcomings of centralized planning and to certain extent performs the function of the market price keeping the balance of demand and supply.

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