How Much Control is Enough? Monitoring and Enforcement under Stalin.

Given wide scope for asymmetric information in huge hierarchies agents have a large capacity for opportunistic behaviour. Hidden actions increase transactions costs and cause the demand for monitoring and enforcement. Once the latter are costly, this raises questions about their scope, logistics and type. Using historical records, this paper examines the Stalin’s answers to them. We find that Stalin maximised efficiency of the Soviet system of control but had to mitigate with the problems of the loyalty of inspectors themselves and the necessity to lessen the risk of a “chaos of orders” arising from parallel centres of power.