Goods Diversion and Repressed Inflation: Notes on the Political Economy of Price Liberalization
Most analyses of parallel markets in centrally planned systems focus on queue-rationing as the mechanism whereby state-sector goods become available for second economy resale. This article takes into account employee diversion of goods as a second channel through which merchandise can move to private markets. Diversion of goods tends to temper the adverse distributional consequences of price liberalization. As repressed inflation increases, more goods are diverted out of the state sector and the likelihood that an individual will be made worse-off by a transition of free prices is diminished. Copyright 1998 by Kluwer Academic Publishers
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