Prices and knowledge: A market-process perspective

Change, responsiveness and co-ordination 103accepted theory of disequilibrium adjustment can only be shared. Ofcourse, most market-process theorists believe they are already wellon the way towards such a theory. On the other hand, economistswho find only mathematically formalized arguments acceptable willprefer the interesting lines of research suggested by the already citedwork of Littlechild, Fisher, and Frydman, among others.Nelson and the knowledge problemNelson (1981:95) believes bounded rationality is the main problemany form of economic organization has to face. At the risk of someoversimplification, his view of the alternative systems can bepresented in the following manner: under a centralized regime, theplant managers, faced with new configurations of preferences,resources, and/or technologies, have to convey some informationto the central planner, the amount of which will be constrained bythe latter’s bounded rationality. The planner must then use thelimited information he has been able to receive to compute newcourses of action that, in turn, have to be conveyed back to theplants.Because of the planner’s limitations, the whole process will take asignificant amount of time, and his computed response will not be‘fine-tuned’ to the local conditions to which it refers. (Of course,Nelson is aware that by the time the plants receive their newinstructions the data will have changed again. This means the systemwill not manage to achieve equilibrium. However, this is notimportant because, in his view, neither organizational systemachieves equilibrium in a world of change, even though privateenterprise is faster than planning.) There is also the problem ofcontrol by the planner to ensure that the plant managers are bothsupplying him with the necessary information and complying withhis instructions (Nelson 1981:102).Private firms, on the other hand, faced with the same new‘facts’, do not have to convey the information anywhere and havemuch smaller computational problems to solve. Also, the profitincentive makes them self-controlling. However, from this pointof view, the decentralization of decision-making that producesthese advantages of private enterprise also gives rise to its mainlimitation, the inter- and intra-industry co-ordination problemsmentioned above.