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Economic Crisis in a Shortage Economy

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  • Osband, Kent

Abstract

It is not unusual for reforming socialist economies to relax wage controls without hardening budget constraints on enterprises or freeing consumer goods prices. This policy can be dangerously destabilizing. While higher wages permit workers to purchase more of some goods, they also tend to exacerbate shortages and to breed waste and corruption. Beyond a certain level, economywide wage hikes will worsen worker welfare, regardless of whether deficit goods are strictly rationed, sold randomly at official prices to queuing workers, or offered to workers by "insiders" only at black-market prices. However, the form of allocation does influence the levels of output and welfare. Copyright 1992 by University of Chicago Press.

Suggested Citation

  • Osband, Kent, 1992. "Economic Crisis in a Shortage Economy," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 673-690, August.
    • Handle: RePEc:ucp:jpolec:v:100:y:1992:i:4:p:673-90
    DOI: 10.1086/261835
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    Cited by:

    1. Sergei Guriev, 2019. "Gorbachev versus Deng: A Review of Chris Miller's The Struggle to Save the Soviet Economy," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 120-146, March.
    2. Kazimierz Stanczak, 1992. "Price Controls, Inflation, and Welfare in the Steady-State," UCLA Economics Working Papers 684, UCLA Department of Economics.
    3. Berkowitz, Daniel & DeJong, David N., 2002. "Accounting for growth in post-Soviet Russia," Regional Science and Urban Economics, Elsevier, vol. 32(2), pages 221-239, March.
    4. Bennett, John & Dixon, Huw David, 1995. "Macroeconomic equilibrium and reform in a transitional economy," European Economic Review, Elsevier, vol. 39(8), pages 1465-1485, October.
    5. Sergei Guriev, 2019. "Gorbachev versus Deng: A Review of Chris Miller's The Struggle to Save the Soviet Economy," Journal of Economic Literature, American Economic Association, vol. 57(1), pages 120-146, March.
    6. von Furstenberg, George M & Spangenberg, Nicholas O, 1996. "The Political Temptations of Rationing by Insiders," Public Choice, Springer, vol. 88(1-2), pages 69-81, July.
    7. Alexeev, Michael & Sabyr, Lyaziza, 2004. "Black markets and pre-reform crises in former socialist economies," Economic Systems, Elsevier, vol. 28(1), pages 1-12, March.
    8. Alexeev, Michael & Leitzel, James, 2001. "Income distribution and price controls: Targeting a social safety net during economic transition," European Economic Review, Elsevier, vol. 45(9), pages 1647-1663, October.
    9. Brennan Platt, 2009. "Queue-rationed equilibria with fixed costs of waiting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 247-274, August.
    10. Reynolds, Douglas B. & Kolodziej, Marek, 2008. "Former Soviet Union oil production and GDP decline: Granger causality and the multi-cycle Hubbert curve," Energy Economics, Elsevier, vol. 30(2), pages 271-289, March.
    11. Robert K. Kaufmann, 2014. "The End of Cheap Oil: Economic, Social, and Political Change in the US and Former Soviet Union," Energies, MDPI, vol. 7(10), pages 1-17, September.
    12. Berkowitz, Daniel, 1996. "On the persistence of rationing following liberalization: A theory for economies in transition," European Economic Review, Elsevier, vol. 40(6), pages 1259-1279, June.
    13. repec:hal:spmain:info:hdl:2441/50oojv2kpq972a1928dqj0v6at is not listed on IDEAS
    14. Kazimierz Stanczak, 1993. "The Benefits of Imperfect Competition Under Price Controls," UCLA Economics Working Papers 692, UCLA Department of Economics.

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