Dissemination of Technology in Market and Planned Economies

The Soviet Union was competing head to head with market economies in the generation of new technologies, not only in traditional industries such as steelmaking, electricity, and machineries, but also in high tech-areas such as synthetic materials and microelectronics. Yet its productivity performance was significantly worse than that of both developing and industrial countries. R&D-based growth models cannot explain this fact, as the Soviet effort in research and education was comparable to that of most advanced countries. I claim that a technology adoption model helps us understand better the Soviet experience. I hypothesize that the Soviet managerial compensation system generated an incentive for the manager to perform only a modest retooling activity out of fear of breaking the production norm that the planner imposed upon the firm.