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Economic Crisis in a Shortage Economy

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  • Osband, Kent
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    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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    Bibliographic 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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    Web page: http://www.journals.uchicago.edu/JPE/

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    Cited by:
    1. Daniel Berkowitz & David N. DeJong, 1998. "Accounting for Growth in Post-Soviet Russia," William Davidson Institute Working Papers Series 127, William Davidson Institute at the University of Michigan.
    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. Brennan Platt, 2009. "Queue-rationed equilibria with fixed costs of waiting," Economic Theory, Springer, vol. 40(2), pages 247-274, August.
    4. Dixon, Huw David, 1993. "Macroeconomic Equilibrium and Reform in a Transitional Economy," CEPR Discussion Papers 758, C.E.P.R. Discussion Papers.
    5. Kazimierz Stanczak, 1993. "The Benefits of Imperfect Competition Under Price Controls," UCLA Economics Working Papers 692, UCLA Department of Economics.
    6. Kazimierz Stanczak, 1992. "Price Controls, Inflation, and Welfare in the Steady-State," UCLA Economics Working Papers 684, UCLA Department of Economics.
    7. 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.
    8. Reynolds, Douglas B. & Kolodziej, Marek, 2008. "Former Soviet Union oil production and GDP decline: Granger causality and the multi-cycle Hubbert curve," Energy Economics, Elsevier, vol. 30(2), pages 271-289, March.
    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. von Furstenberg, George M & Spangenberg, Nicholas O, 1996. " The Political Temptations of Rationing by Insiders," Public Choice, Springer, vol. 88(1-2), pages 69-81, July.

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