CFDP 672

Organizing Production in a Large Economy with Costly Communication

Author(s): 

Publication Date: July 1983

Pages: 9

Abstract: 

We show that in a large production economy, the cost of collecting the information required by a planner to set nearly optimal prices is negligible relative to the total output of the economy. The cost of collecting the information required to set a nearly optimal production plan for each firm in the economy is not negligible. This conclusion stands in contrast to common opinion that determining optimal prices requires as much information as determining an optimal plan.