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A Three-Sector Model of the Russian Virtual Economy

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Author Info

  • Agapov Stanislav
  • Boyarchenko Svetlana

    ()

  • Levendorsky Sergey

    ()

Abstract

The Russian economy has evolved into a hybrid form, a partially monetized quasi-market system that has been called the virtual economy. In the virtual economy, barter and non-monetary transactions play a key role in transferring value from productive activities to the natural monopolies and loss-making sectors of the economy. The project aims at providing a consistent and multi-facet exposition of main features of the Russian virtual economy, and explains why it is different from other transition economies. In particular, the endogenous appearance of money substitutes and wide-spread use of non-monetary transactions are explained as a result of the optimizing behavior of agents in the economy, given the inherited distorted structure, the existence of large natural monopolies, the unproductive sector organized into informal networks, and the government policies aimed at the support of this sector. We highlight the typical distortions of the price system, and provide an explanation of the observed dynamics of the volume of money substitutes in circulation after August 1998 crisis. We show that the Russian virtual economy can be in one of two steady states with approximately the same price systems but essentially different volumes of money substitutes in circulation. Transition into the state with the smaller volume of money substitutes in circulation can be caused by an increase of the number of active producers resulting from some external shock. We conjecture that should the productive business activity be suppressed, then the economy can swiftly return to the former state with the large volume of money substitutes in circulation.

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Bibliographic Info

Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 02-06e.

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Length: 38 pages
Date of creation: 13 Feb 2003
Date of revision:
Handle: RePEc:eer:wpalle:02-06e

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Keywords: Russia; money substitutes; search models;

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