Economic Planning

Economic planning refers to any directing or planning of economic activity outside the mechanisms of the market. Planning is an economic mechanism for resource allocation and decision-making held in contrast with the market mechanism, where planning refers to a direct allocation of resources. Most economies are mixed economies, incorporating elements of markets and planning for distributing inputs and outputs. The level of centralization of decision-making in the planning process ultimately depends on the type of planning mechanism employed; as such planning need not be centralized and may be based on either centralized or decentralized decision-making.

Economic planning can apply to production, investment, distribution or all three of these functions. Planning may take the form of directive planning or indicative planning. An economy primarily based on central planning is a planned economy; in a planned economy the allocation of resources is determined by a comprehensive plan of production which specifies output requirements.

A distinction can be made between physical planning (as in pure socialism), meaning economic coordination and planning conducted in terms if disaggregated physical units or by a common natural unit, and between financial planning (as practiced by governments and private firms within capitalism).