Advantages
An advantage is public control over investment. The rate of economic growth would be largely state-determined due to the investment ratio being one of its major determinants. In addition, Lange argued that externalities could be better accounted for as a result of the state's ability to manipulate resource prices. Because the state controls all firms, they could easily factor the cost of an externality into the price of a certain resource. Because the decisions are made by higher rather than lower levels, it is argued that these decisions are less likely to have undesirable environmental consequences.
Furthermore, because the state uses marginal cost pricing and determines entry, monopolies, and the accompanying lack of allocative efficiency and x-efficiency can be avoided under Langean socialism.
The model claims to solve another main criticism of capitalism. Lange believed that his model would reduce cyclical instability because the state would control savings and investment, consequently eliminating a major source of inefficiency, inequality and social instability that arises from violent cyclical shifts under capitalism.
Read more about this topic: Lange Model
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