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When does rent-seeking augment the benefits of price and trade reform on rationed commodities? : estimates for automobiles and color televisions in Poland

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  • Tarr, David

Abstract

To assess the impact of price and trade reform on the Polish market for autos and color televisions, the author has developed a differentiated product model in which consumers maximize utility and firms maximize profits subject to rationing constraints and price controls. This paper focuses on that model. First it discusses the institutional details of the auto and color TV markets in Poland. It then lays out the stylized facts that are incorporated in the model, and discusses the methods of allocating autos and color TVs in the context of the rent-seeking and rent dissipation literature. The final section summarizes the results which find that, all things being equal, the elimination of price controls for both autos and televisions had the effect of decreasing imports, as more domestic autos were produced and sold. The implication is that -- contrary to the Polish government's intention -- price controls were a trade distortion that increased imports: that is, they implicitly subsidized imports. The author also shows that import liberalization produces greater benefits when there are domestic price controls with rent dissipation, because import liberalization reduces the rent. The appendices include a description of the model, a discussion of the data sources, and a review of the literature on rent-seeking activities as it relates to rent dissipation under price controls.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 741.

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Date of creation: 31 Aug 1991
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Handle: RePEc:wbk:wbrwps:741

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Keywords: Economic Theory&Research; Markets and Market Access; Access to Markets; Environmental Economics&Policies; Fiscal&Monetary Policy;

References

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  1. McCormick, Robert E & Shughart, William F, II & Tollison, Robert D, 1984. "The Disinterest in Deregulation," American Economic Review, American Economic Association, vol. 74(5), pages 1075-79, December.
  2. Neary, J. P. & Roberts, K. W. S., 1980. "The theory of household behaviour under rationing," European Economic Review, Elsevier, vol. 13(1), pages 25-42, January.
  3. Tarr, David G, 1990. "Second-Best Foreign Exchange Policy in the Presence of Domestic Price Controls and Export Subsidies," World Bank Economic Review, World Bank Group, vol. 4(2), pages 175-93, May.
  4. Charemza, Wojciech & Gronicki, Miroslaw & Quandt, Richard E., 1988. "Modelling parallel markets in centrally planned economies : The case of the automobile market in Poland," European Economic Review, Elsevier, vol. 32(4), pages 861-883, April.
  5. J. Bhagwati & T. N. Srinivasan, 1979. "Revenue-Seeking: A Generalization of the Theory of Tariffs," Working papers 243, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Bhagwati, Jagdish N., 1980. "Lobbying and welfare," Journal of Public Economics, Elsevier, vol. 14(3), pages 355-363, December.
  7. Lindsay, Cotton M & Feigenbaum, Bernard, 1984. "Rationing by Waiting Lists," American Economic Review, American Economic Association, vol. 74(3), pages 404-17, June.
  8. Hillman, Arye L & Katz, Eliakim, 1984. "Risk-Averse Rent Seekers and the Social Cost of Monopoly Power," Economic Journal, Royal Economic Society, vol. 94(373), pages 104-10, March.
  9. Tullock, G., 1981. "Lobbying and welfare: a comment," Journal of Public Economics, Elsevier, vol. 16(3), pages 391-394, December.
  10. Tarr, David, 1990. "Quantifying second best effects in grossly distorted markets: The case of the butter market in Poland," Journal of Comparative Economics, Elsevier, vol. 14(1), pages 105-119, March.
  11. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
  12. Elias Dinopoulos & Timothy D. Lane, 1991. "Fiscal Constraintson Market-Oriented Reform in a Socialist Economy," IMF Working Papers 91/75, International Monetary Fund.
  13. Tollison, Robert D, 1982. "Rent Seeking: A Survey," Kyklos, Wiley Blackwell, vol. 35(4), pages 575-602.
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