Two methods of income distribution have been particularly associated with socialist thinking, " to each according to his needs " and " to each according to his work ". In the literature on socialism it is the latter system that has been mostly studied. Marx felt the former system to be appropriate only at the " higher phase of the communist society," and emphasized the principle of distribution " proportional to the amount of labour they contribute ", in the " first phase " of the communist society.2 While discussions in the Marxist literature have concentrated mainly on distribution according to work, in particular on the utilisation of the wage system, actuat methods of payments in socialist economies have often departed from this rule, the most notable example of this being in Chinese agriculture. On the other plane of discussion, in the theoretical literature on resource allocation with decentralized planning, the emphasis has been on reaching Pareto-optimality, and that, with the usual assumptions, has been found to fit in well with a wage system.3 There have of course been discussions on correcting the distribution according to work towards the goal of distribution according to needs through a set of taxes and subsidies, but the basic method of payment that has been considered has always been some variant or other of the wage system. The actual organization of enterprises in communist countries tend to depart from a pure wage system in at least two different ways: (i) in the use of some variant of profitsharing over and above a wage system,4 and (ii) in having a part of the income distributed on some criteria other than that of work, e.g. some interpretation of " needs ".5 There is not yet a distinct body of literature on the theory of non-wage allocation of labour; nevertheless, in the context of policy debates, the following questions have repeatedly cropped up. (1) What are the difficulties in having a system of distribution purely according to needs? While in the U.S.S.R. and in Eastern Europe there has not been any large-scale attempt to have payments primarily according to needs, the Chinese leaders have tried to break through the problem of incentives involved in this, and it has even been claimed that " ideally, the party leaders would like non-material incentives to become the main motive force impelling the masses on to greater output .6 (2) What difficulties are there in having a system of distribution purely according to work, even profits being shared on that basis? Based on Yugoslav experience Ward [211