The Soviet Union's system of resource allocation combines the method of direct determination of outputs by the center with the method of central determination of parametric prices and rules of behavior. Direct allocation is used for subaggregates of products, and centrally determined prices – which, because of their considerable stickiness, cannot constitute a “dual” – are used parametrically to determine the product mix of these subaggregates. Why this reliance by the center on both physical planning and centrally determined parametric pricing?

The answer which first suggests itself is that parametric prices are used to deal with a level of disaggregation that cannot be handled by physical planning. Thus, the two methods complement one another. However, given that their stickiness prevents centrally determined prices from acting as a “dual,” why does the center not allow the parametric prices that determine the demand and supply of individual items within each subaggregate to be determined on the marketplace? Not only would this procedure have certain optimizing features currently absent, but it could also be used – if this were desired – to increase the degree of planners' sovereignty over the product mix of consumers' goods.

The explanation that is offered in this chapter for the continuation since the beginning of the 1930s of the foregoing features of the Soviet planning system is that there exists a set of constraints, embodied in the center's objective function, which has not been considered in either the Soviet or Western literature.