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No. 56 Abstract

Mark Harrison, "Forging Success: Soviet Managers and False Accounting, 1943 to 1962."

Attempting to satisfy their political masters in a target-driven culture, Soviet managers had to optimize on many margins simultaneously. One of these was the margin of truthfulness. False accounting for the value of production appears to have been widespread in some branches of the economy and some periods of time. A feature of cases of false accounting was that they commonly involved the aggravating element of conspiracy. The paper provides new evidence on the nature and extent of false accounting; the scale and optimal size of underlying conspiracies; the authorities’ difficulty in committing to penalize it and the importance of political connections in securing leniency; and the importance of herd effects, leading to correlated risk taking and periodic asset price bubbles in the socialist market where interpersonal trust was traded.