The costs of shortages and rationing are not captured by standard consumer price indices. Thus the change in real GDP per capita is an over estimate of welfare losses in transition economies. In this study virtual prices are used to calculate new cost of living indices (CLI). The results for Poland show that over 1987 to 1992 the CLI ignoring the rationing effects is biased upward from 1.53 to 3.71 percentage points per year. Compared to the estimates of welfare loss that neglect the rationing effects during the prereform period, the estimated welfare losses that reflect the rationing are reduced by 50 percent using Hausman’s virtual prices and by 75 percent using external proxy virtual prices.
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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
11158.
Length: Date of creation: 11 Dec 2003 Date of revision: Publication status: Published in Review of Economics and Statistics, May 2004, Vol. 86, No. 2, pp. 626-636. Handle: RePEc:isu:genres:11158
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