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Payments in Kind

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  • Ellingsen, Tore

    ()
    (Dept. of Economics, Stockholm School of Economics)

Abstract

Payments in kind pose an enduring and empirically important puzzle. The paper provides a formalization of the popular view that payment in kind are due to financial constraints. The key assumption is that buyers' liquidity is private information. Buyers who are financially constrained may prove their hardship by making part of the payment in kind. The paper models explicitly the credit market imperfections which lead to payments in kind and yields predictions which are consistent with a number of empirical observations. In particular, it offers a coherent explanation for the recent explosion of barter in Russia and other former Soviet republics.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 244.

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Length: 28 pages
Date of creation: 09 Jun 1998
Date of revision: 10 Feb 2000
Handle: RePEc:hhs:hastef:0244

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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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Related research

Keywords: In-kind payments; barter; countertrade; financial constraints; price discrimination;

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References

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  1. Dalia Marin & Monika Schnitzer, 1999. "Disorganization and Financial Collapse," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 285, William Davidson Institute at the University of Michigan.
  2. Canice Prendergast & Lars A. Stole, 1996. "Non-Monetary Exchange Within Firms and Industry," NBER Working Papers 5765, National Bureau of Economic Research, Inc.
  3. Marin, Dalia & Schnitzer, Monika, 1997. "The Economic Institution of International Barter," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1658, C.E.P.R. Discussion Papers.
  4. Oliver Hart & John Moore, 1997. "Default and Renegotiation: A Dynamic Model of Debt," STICERD - Theoretical Economics Paper Series, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE /1997/321, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Marin,Dalia & Schnitzer,Monika, 1993. "Tying trade flows: A theory of countertrade," Discussion Paper Serie A, University of Bonn, Germany 396, University of Bonn, Germany.
  6. Caves, Richard E. & Marin, Dalia, 1992. "Countertrade transactions: theory and evidence," Munich Reprints in Economics, University of Munich, Department of Economics 19952, University of Munich, Department of Economics.
  7. Choi, Chong J. & Maldoom, Daniel, 1992. "A simple model of buybacks," Economics Letters, Elsevier, Elsevier, vol. 40(1), pages 77-82, September.
  8. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo Group Munich.
  9. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 106(1), pages 1-40, February.
  10. Timothy J. Kehoe & Nobuhiro Kiyotaki & Randall Wright, 1991. "More on money as a medium of exchange," Staff Report, Federal Reserve Bank of Minneapolis 140, Federal Reserve Bank of Minneapolis.
  11. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 93-106, March.
  12. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 927-54, August.
  13. Chan, Raissa & Hoy, Michael, 1991. "East--West joint ventures and buyback contracts," Journal of International Economics, Elsevier, Elsevier, vol. 30(3-4), pages 331-343, May.
  14. Daniel Kaufman & Dalia Marin, 1998. "Disorganization, financial squeeze, barter," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 165, William Davidson Institute at the University of Michigan.
  15. Ellingsen, Tore & Stole, Lars A., 1996. "Mandated countertrade as a strategic commitment," Journal of International Economics, Elsevier, Elsevier, vol. 40(1-2), pages 67-84, February.
  16. Smith, Janet Kiholm, 1987. " Trade Credit and Informational Asymmetry," Journal of Finance, American Finance Association, American Finance Association, vol. 42(4), pages 863-72, September.
  17. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, American Economic Association, vol. 78(4), pages 691-700, September.
  18. Brennan, Michael J & Maksimovic, Vojislav & Zechner, Josef, 1988. " Vendor Financing," Journal of Finance, American Finance Association, American Finance Association, vol. 43(5), pages 1127-41, December.
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Citations

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Cited by:
  1. Guido Friebel, 2000. "Why Russian Workers do not Move: Attachment of Workers through In-Kind Payments," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 1376, Econometric Society.
  2. Canice Prendergast & Lars Stole, 2001. "Barter, Liquidity and Market Segmentation," CESifo Working Paper Series 586, CESifo Group Munich.
  3. Sergei Guriev & Dmitry Kvassov, 2000. "Price Discrimination Through Barter: A Theory and Evidence from Russia," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0397, Econometric Society.
  4. Guriev, Sergei & Kvassov, Dmitri, 2004. "Barter for price discrimination," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 22(3), pages 329-350, March.
  5. Brana, S. & Maurel, M., 1999. "Barter in Russia : Liquidity Shortage Versus Lack of Restructuring," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 1999.98, Université Panthéon-Sorbonne (Paris 1).
  6. Sergei Guriev & Dmitry Kvassov, 2000. "Barter for price discrimination? A theory and evidence from Russia," Working Papers w0007, Center for Economic and Financial Research (CEFIR).
  7. Jose Noguera & Susan Linz, 2003. "A Theoretical Model of Barter in Russia," CERGE-EI Working Papers wp207, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Richard B. Goud Jr., 2002. "Inter-Firm Non-Monetary Transactions in Russia: A Literature Review," Development and Comp Systems 0207001, EconWPA.

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