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When Higher Incomes Reduce Welfare: Queues, Labor Supply, and Macro Equilibrium in Socialist Economies

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  • Maxim Boycko

Abstract

Starting from a micro model of consumer behavior under rationing by queuing that utilizes Gary Becker's "Allocation of Time" framework, we develop a simple macroeconomic model of a socialist economy. The "length of the queue" is the key endogenous variable that equilibrates aggregate supply and aggregate demand. Comparative statics analysis shows that an increase in wages over money prices brings about longer queues that reduce labor supply, output, and welfare. When shortages grow beyond a certain critical level, queues fail to sustain aggregate equilibrium in the economy.

Suggested Citation

  • Maxim Boycko, 1992. "When Higher Incomes Reduce Welfare: Queues, Labor Supply, and Macro Equilibrium in Socialist Economies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 907-920.
    • Handle: RePEc:oup:qjecon:v:107:y:1992:i:3:p:907-920.
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    File URL: http://hdl.handle.net/10.2307/2118368
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    Citations

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    Cited by:

    1. Berkowitz, Daniel & DeJong, David N., 2002. "Accounting for growth in post-Soviet Russia," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 221-239, March.
    2. 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.
    3. Jim Leitzel, 1998. "Goods diversion and repressed inflation: Notes on the political economy of price liberalization," Public Choice, Springer, vol. 94(3), pages 255-266, March.
    4. Brennan Platt, 2009. "Queue-rationed equilibria with fixed costs of waiting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 247-274, August.
    5. Alexeev, Michael & Leitzel, James, 2001. "Income distribution and price controls: Targeting a social safety net during economic transition," European Economic Review, Elsevier, vol. 45(9), pages 1647-1663, October.
    6. Sergei Guriev, 2019. "Gorbachev versus Deng: A Review of Chris Miller's The Struggle to Save the Soviet Economy," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 120-146, March.
    7. Amitrajeet A. Batabyal & Hamid Beladi, 2008. "Bribery and Favoritism in Queuing Models of Rationed Resource Allocation," Journal of Theoretical Politics, , vol. 20(3), pages 329-338, July.
    8. Sonya Kostova Huffman & Stanley R. Johnson, 2004. "Impacts of Economic Reform in Poland: Incidence and Welfare Changes Within a Consistent Framework," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 626-636, May.
    9. 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.
    10. repec:hal:spmain:info:hdl:2441/50oojv2kpq972a1928dqj0v6at is not listed on IDEAS
    11. Erwin Nijsse & Elmer Sterken,, 1996. "Shortages, interest rates, and money demand in Poland, 1969-1995," Working Papers 25, Centre for Economic Research, University of Groningen and University of Twente.
    12. Leitzel, Jim, 1998. "Goods Diversion and Repressed Inflation: Notes on the Political Economy of Price Liberalization," Public Choice, Springer, vol. 94(3-4), pages 255-266, March.
    13. Debra Patterson, 1999. "An open-economy transition model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 5(1), pages 24-36, February.
    14. Cecilia Testa, 2005. "Reforms, lobbies and welfare: A common agency approach," Public Choice, Springer, vol. 125(3), pages 305-337, December.
    15. Sergei Guriev, 2019. "Gorbachev versus Deng: A Review of Chris Miller's The Struggle to Save the Soviet Economy," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 120-146, March.
    16. Huizinga, Harry, 1995. "The political economy of price ceilings for necessities," Journal of Development Economics, Elsevier, vol. 47(2), pages 443-454, August.
    17. Kolomak Evgeniya, 2004. "How high are the barriers of the regional price regulation in Russia?," EERC Working Paper Series 04-11e, EERC Research Network, Russia and CIS.
    18. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
    19. Sergei Guriev, 2019. "Gorbachev versus Deng: A Review of Chris Miller's 'The Struggle to Save the Soviet Economy'," SciencePo Working papers Main hal-03457000, HAL.
    20. Debra Moore Patterson, 1996. "Reform in Eastern Europe: A General Equilibrium Model with Distortions in Relative Prices and Factor Markets," Canadian Journal of Economics, Canadian Economics Association, vol. 29(2), pages 457-472, May.

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