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Abstract

In this Paper we study, both theoretically and empirically, the relationship between barter and the indebtedness of Russian firms. We build a model in which a firm uses barter to protect its working capital against outside creditors even when barter involves high transaction costs. The main innovation of our work is to allow renegotiation between the firm and its creditors. If the creditors are rational, they often agree to postpone debt payments in order to avoid destroying the firm's working capital. It turns out, however, that even if the firm cannot ensure it will not divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater the debt overhang, the more likely the use of barter, and although the possibility of debt restructuring reduces barter, it does not eliminate it altogether. We also discuss the role of the government bond market and weak bankruptcy legislation. The firm-level evidence from two independent surveys is consistent with the model's predictions.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 30 (2002)
Issue (Month): 4 (December)
Pages: 635-656

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Handle: RePEc:eee:jcecon:v:30:y:2002:i:4:p:635-656

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Web page: http://www.elsevier.com/locate/inca/622864

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Find related papers by JEL classification:

• P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General

References

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1. Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2000. "Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey," CERT Discussion Papers 0004, Centre for Economic Reform and Transformation, Heriot Watt University.
   
   • Carlin, Wendy & Fries, Steven & Schaffer, Mark & Seabright, Paul, 2000. "Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
   • Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2000. "Barter and non-monetary transactions in transition economies: Evidence from a cross-country survey," Working Papers 50, European Bank for Reconstruction and Development, Office of the Chief Economist.
2. Dalia Marin & Monika Schnitzer, 2000. "Disorganization and Financial Collapse," CESifo Working Paper Series 339, CESifo Group Munich.
   
   • Marin, Dalia & Schnitzer, Monika, 2005. "Disorganization and financial collapse," European Economic Review, Elsevier, vol. 49(2), pages 387-408, February.
   • Dalia Marin & Monika Schnitzer, 1999. "Disorganization and Financial Collapse," William Davidson Institute Working Papers Series 285, William Davidson Institute at the University of Michigan.
   • Marin, Dalia & Schnitzer, Monika, 1999. "Disorganization and Financial Collapse," CEPR Discussion Papers 2245, C.E.P.R. Discussion Papers.
3. Enrico C. Perotti & Octavian Carare, 1996. "The Evolution of Bank Credit Qulity in Transition: Theory and Evidence from Romania," William Davidson Institute Working Papers Series 49, William Davidson Institute at the University of Michigan.
   
   • E.C. Perotti & O. Carare, 1997. "The Evolution of Bank Credit Quality in Transition: Theory and Evidence from Romania," CERT Discussion Papers 9702, Centre for Economic Reform and Transformation, Heriot Watt University.
4. Berglof, Erik & Roland, Gerard, 1998. "Soft Budget Constraints and Banking in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 18-40, March.
5. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox of Liquidity," CRSP working papers 339, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
   
   • Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 733-771, August.
   • Stewart C. Myers & Raghuram G. Rajan, 1995. "The Paradox of Liquidity," NBER Working Papers 5143, National Bureau of Economic Research, Inc.
6. Guriev, Sergei & Kvassov, Dmitri, 2004. "Barter for price discrimination," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 329-350, March.
   
   • Guriev, Sergei & Kvassov, Dmitry, 2000. "Barter For Price Discrimination?," CEPR Discussion Papers 2449, C.E.P.R. Discussion Papers.
7. Susan J. Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," William Davidson Institute Working Papers Series 152, William Davidson Institute at the University of Michigan.
   
   • Susan J Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," Comparative Economic Studies, Palgrave Macmillan, vol. 40(2), pages 5-52, July.
8. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," CID Working Papers 49, Center for International Development at Harvard University.
9. Clifford Gaddy & Barry W. Ickes, 1998. "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition," William Davidson Institute Working Papers Series 134, William Davidson Institute at the University of Michigan.
10. V. Makarov & G. Kleiner, 2000. "Barter in Russia," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 42(11), pages 51-79, March.
11. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July.
12. Earle, John S. & Peter, Klara Sabirianova, 2000. "Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In," IZA Discussion Papers 196, Institute for the Study of Labor (IZA).
13. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
    
    • Paul R. Krugman, 1989. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
14. Brana, S. & Maurel, M., 1999. "Barter in Russia : Liquidity Shortage Versus Lack of Restructuring," Papiers d'Economie Mathématique et Applications 1999.98, Université Panthéon-Sorbonne (Paris 1).
    
    • Brana, Sophie & Maurel, Mathilde, 1999. "Barter in Russia: Liquidity Shortage Versus Lack of Restructuring," CEPR Discussion Papers 2258, C.E.P.R. Discussion Papers.
    • Sophie Brana & Mathilde Maurel, 1999. "Barter in Russia: Liquidity Shortage versus Lack of Restructuring," William Davidson Institute Working Papers Series 271, William Davidson Institute at the University of Michigan.

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Citations

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Cited by:

1. Kim, Byung-Yeon & Pirttilä, Jukka & Rautava, Jouko, 2001. "Money, Barter and Inflation in Russia," BOFIT Discussion Papers 15/2001, Bank of Finland, Institute for Economies in Transition.
   
   • Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
   • Byung-Yeon Kim & Jukka Pirttilä & Jouko Rautava, 2002. "Money, Barter and Inflation in Russia," Macroeconomics 0209009, EconWPA.
2. Fleischman, Gary & Herz, Paul, 2005. "An empirical investigation of trends in barter activity in the Russian Federation," The International Journal of Accounting, Elsevier, vol. 40(1), pages 39-63.
3. Dolud, Olena, 2004. "Nichtmonetäre Transaktionen in der ukrainischen Landwirtschaft: Determinanten, Spezifika und Folgen," Studies on the Agricultural and Food Sector in Central and Eastern Europe, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO), volume 24, number 93080, May.
4. Vlad Ivanenko, 2004. "Access to liquidity and non-monetary trade in Russia," Post-Communist Economies, Taylor and Francis Journals, vol. 16(1), pages 21-38.
5. Richard B. Goud Jr., 2002. "Inter-Firm Non-Monetary Transactions in Russia: A Literature Review," Development and Comp Systems 0207001, EconWPA.
6. Vahabi, Mehrdad, 2011. "Soft budget constraint and the parastatal sector," MPRA Paper 37926, University Library of Munich, Germany.
7. Vlad Ivanenko & Dmitry Mikheyev, 2002. "The Role of Non-monetary Trade in Russian Transition," Post-Communist Economies, Taylor and Francis Journals, vol. 14(4), pages 405-419.

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