Information Problem Reconstructed

Like many others, I read and benefited from Vivek Chibber's Class Matrix. Considering how confused contemporary sociology can become on the subject of class structure, Chibber's clarifying contributions were more than welcome. Moreover, I consider G.A. Cohen and his project an inspiration, at minimum. But significant clarifications are needed regarding Chibber's recent discussions on variants of socialism in the podcast Confronting Capitalism, published in one of the most popular radical outlets, Jacobin.

Chibber, to the best of my knowledge, presents his criticisms of planned economy similarly in other popular media. He frames the planner's problem as twofold: first, an information problem; second, an incentive problem. It takes some time to wrap your head around his depiction of the information problem. Ultimately, it is indeed the standard asymmetric information problem, but tailored specifically: the planner does not know the productive capacities of individual producers and relies on information either voluntarily shared or inferred from outcomes; moreover, there are complex interdependencies between industries that the planner cannot fully grasp. This last point will matter in Chibber's argument, as we will see, but let me repeat now: the planner would like to minimize waste and be precise in allocating inputs, but the plan may not reflect actual capacities, and in a world of uncertainty, the planner can fail to deliver necessary inputs even for that plan that relied on flawed information. The incentive problem, according to Chibber, is related to the information problem: realizing that the planner's output targets will fail and input provision to many industries will likewise fail, managers begin misrepresenting their productive capabilities, announcing them lower than they actually are, so they won't be tasked with producing high outputs requiring high inputs that may not materialize. If the information given to planners is persistently skewed due to misaligned incentives, Chibber argues, the entire economy eventually operates on a "rule of thumb" and stagnates. The incentive misalignment is so central to Chibber's thesis that he states: "Furthermore, whatever bad information is coming in is coming in as a consequence of the misalignment of the incentives, which means that a big part of what I call the information problem is actually a downstream consequence of the incentive problem."

My objections follow. First, I contend there are not two separate information and incentive problems; there is only the information problem. The planner doesn't know productive capacities because the planner observes outcomes but cannot costlessly monitor the production process. Thus, the planner doesn't know the incentives of workers, how long production takes, and so forth. I want to emphasize the significance of this confusion: if the planner could costlessly monitor the production process, that is, if the planner possessed the information workers have, conflicts of interests would not be problematic. Workers could still prefer to earn as much as possible for the least effort, and the planner could still want maximum effort for minimum pay; as long as the planner can costlessly measure effort levels, these conflicting incentives can be accounted for without welfare losses.

Note that none of these problems are unique to planned economies. In fact, the principal-agent problem, where principal and agent have conflicting interests and the principal cannot observe the agent's effort level costlessly but only the outcome, appears in nearly every capitalist enterprise. So why does Chibber argue these problems devastate planned economies more severely? Notice how Chibber's information problem differs fundamentally from the standard formulation. In his version, even if workers and managers were wholly committed to society's interests, they would fail their tasks simply because the planner fails to provide necessary inputs. The planner is afflicted with the information problem. Markets, by contrast, can provide necessary inputs when the planner cannot, Chibber argues. Yet note: markets in this account do not actually solve the information problem. Shareholders still need to discipline managers, managers still need to discipline workers; none of this is costless. Because Chibber has carefully constructed his argument such that the information problem reduces to a problem of input provision, market economies don't rely on the planner's faulty forecasts. In this formulation, Chibber, at best, demonstrates that the information problem is merely less consequential in market economies than in planned ones; but he cannot conclude the information problem faced by the planner is handled by the virtue of markets. I don't see how the information problem ought to be less consequential in market economies, considering capitalism's short history is full of preventable catastrophes at the global scale, such as the 2007 financial crisis. However, my main emphasis is: Chibber seems to be reconstructing the information problem such that it won’t apply to market systems, and this is simply a false hope.

But Chibber's argument persistently omits a second crucial element, which surprises me. John Roemer, whose work Jacobin has promoted, states "I now think I have assigned the wrong weight to these principal-agent problems in some of my own recent work," and makes a sharp distinction in his A Future for Socialism between principal-agent problems and lack of innovation as sources of planned economy stagnation. Since the information problem we've discussed, as Chibber's interview also acknowledges, is not historically specific but instead intrinsic, how did planned economies perform adequately until the 1970s? To sharpen the question: what changed in the 1970s that induced stagnation? According to Roemer, planned economies struggled to promote innovation. The Jacobin reader need not despair: Roemer proposes competition as a mechanism to force enterprise managers to innovate, for they otherwise lack incentive to do so. Chibber agrees, from a different angle: "Because the managers of the workplaces don't have an incentive to innovate, they're afraid to do so. The planners don't have an incentive to innovate, because now they'll throw their rules of thumb all out of whack."

I disagree. As I have discussed elsewhere, planned economies did attempt to promote innovation, and did so in a familiar way: centralized research and development bodies developed new products, then brought them to enterprises; managers were motivated to produce these new products by allowing them to charge higher prices, creating an "innovation-inflation" cycle. That is, the only mechanism the system could deploy to promote innovation was to generate inflation; and since manager income depended on enterprise performance, higher sales and higher managerial income also meant rising inequality. This cycle is far too familiar. The market economies we inhabit now face an innovation crisis: patents motivate innovation but simultaneously enable monopoly profiteering. New ideas circulate when an innovator is hired under severe restrictions by a competitor at higher wages, benefits, and equity, all costs borne by business and passed to consumers as higher prices, amplifying inequality through inflated wage offerings to move ideas around. The challenge contemporary capitalism confronts is a structural problem of markets: competition makes innovation prohibitively expensive, forcing a choice between stagnation with lower costs and lower inequality, or innovation with escalating costs and widening inequality. Markets have promoted competition between producers, which starves workers of accessible innovation; they have failed to foster cooperation between producers, which would distribute the risks of innovation across firms.

Finally, I agree that we ought to be "remorseless and the most merciless when it comes to facts," and I contend Chibber's characterization of planning's problems fails this standard. Chibber fails to confront capitalism where it needs to be confronted most: by promoting cooperation in place of costly competition when competition fails to promote social welfare.

Doğuhan Sündal

References:

Roemer, John E A Future for Socialism (Cambridge, MA: Harvard University Press, 1994)

https://www.youtube.com/watch?v=FE4ExWWKz6s

https://jacobin.com/2026/05/central-planning-soviet-union-socialism

Sündal, Doğuhan. "Cooperation and coordination in egalitarian political economies." Journal of Economic Interaction and Coordination (2026): 1-17.