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Price Distortion and Shortage Deformation, or What Happened to the Soap?

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  • Weitzman, Martin L

Abstract

The model of this paper generalizes the classical theory of consumer behavior to the more general case of prices that are not necessarily market-clearing. Suppose that, in addition to the money cost, some sort of search, waiting, or other quasi-fixed "effort cost" is needed to obtain goods. The presence of this quasi-fixed cost element will trigger an inventory policy. A shortage equilibrium occurs when effort costs are such that, in the corresponding inventory policy, the flow of desired consumption does not exceed the available supply flow. Stock hoarding, a critical phenomenon in the economics of shortage, emerges as a natural component of this model. A complete characterization of a stationary shortage equilibrium is given. Comparative statics and welfare analysis are performed. The dynamic transition between steady states is analyzed to give insight into the mechanics of how shortages develop. Copyright 1991 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 81 (1991)
Issue (Month): 3 (June)
Pages: 401-14

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Handle: RePEc:aea:aecrev:v:81:y:1991:i:3:p:401-14

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Cited by:
  1. Linda S. Goldberg & Il'dar Karimov, 1992. "Black-Markets for Currency, Hoarding Activity and Currency Reform," NBER Working Papers 4153, National Bureau of Economic Research, Inc.
  2. Dixon, Huw David, 1993. "Macroeconomic Equilibrium and Reform in a Transitional Economy," CEPR Discussion Papers 758, C.E.P.R. Discussion Papers.
  3. Huizinga, Harry, 1995. "The political economy of price ceilings for necessities," Journal of Development Economics, Elsevier, vol. 47(2), pages 443-454, August.
  4. Berkowitz, Daniel, 1996. "On the persistence of rationing following liberalization: A theory for economies in transition," European Economic Review, Elsevier, vol. 40(6), pages 1259-1279, June.
  5. Antoni Chawluk, 2000. "Estimates of Demand for Money and Consumption Functions for the Household Sector in Poland, 1967-1999," Economics Series Working Papers 42, University of Oxford, Department of Economics.
  6. Daniel Berkowitz & David DeJong & Steven Husted, 1997. "Transition in Russia: It's Happening," William Davidson Institute Working Papers Series 33, William Davidson Institute at the University of Michigan.
  7. Jeremy Clark & Bonggeun Kim, 2006. "Differential Time and Money Pricing as a Mechanism for In-kind Redistribution," Working Papers in Economics 06/07, University of Canterbury, Department of Economics and Finance.
  8. Bredin, Don & Cuthbertson, Keith, 2001. "Liquidity Effects and Precautionary Saving in The Czech Republic," Research Technical Papers 4/RT/01, Central Bank of Ireland.
  9. Jeremy Clark & Bonggeun Kim, 2007. "Paying vs. waiting in the pursuit of specific egalitarianism," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 486-512, July.
  10. Sònia Muñoz, 2006. "Suppressed Inflation and Money Demand in Zimbabwe," IMF Working Papers 06/15, International Monetary Fund.
  11. Goldberg, Linda S. & Karimov, Il'dar, 1997. "Black markets for currency, hoarding activity and policy reforms," Journal of International Economics, Elsevier, vol. 42(3-4), pages 349-369, May.
  12. Michael Alexeev & James Leitzel, 1999. "Income Distribution and Price Controls: Targeting a Social Safety Net During Economic Transition," William Davidson Institute Working Papers Series 281, William Davidson Institute at the University of Michigan.
  13. Alexeev, Michael & Sabyr, Lyaziza, 2004. "Black markets and pre-reform crises in former socialist economies," Economic Systems, Elsevier, vol. 28(1), pages 1-12, March.
  14. Leitzel, Jim, 1998. " Goods Diversion and Repressed Inflation: Notes on the Political Economy of Price Liberalization," Public Choice, Springer, vol. 94(3-4), pages 255-66, March.

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