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Economic Crisis in a Shortage Economy

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Author Info
Osband, Kent
Abstract

It is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices. This policy can be dangerously destabilizing. While higher wages permit workers to purchase more of some goods, they also tend to exacerbate shortages and to breed waste and corruption. Beyond a certain level, economywide wage hikes will worsen worker welfare, regardless of whether deficit goods are strictly rationed, sold randomly at official prices to queuing workers, or offered to workers by "insiders" only at black-market prices. However, the form of allocation does influence the levels of output and welfare. Copyright 1992 by University of Chicago Press.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 100 (1992)
Issue (Month): 4 (August)
Pages: 673-90
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Handle: RePEc:ucp:jpolec:v:100:y:1992:i:4:p:673-90

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  1. Kazimierz Stanczak, 1992. "Price Controls, Inflation, and Welfare in the Steady-State," UCLA Economics Working Papers 684, UCLA Department of Economics. [Downloadable!]
  2. Brennan Platt, 2009. "Queue-rationed equilibria with fixed costs of waiting," Economic Theory, Springer, vol. 40(2), pages 247-274, August. [Downloadable!] (restricted)
  3. 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 Stephen M. Ross Business School. [Downloadable!]
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This page was last updated on 2009-11-16.

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