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Price Adjustment Under the Table: Evidence on Efficiency-enhancing Corruption

  • Daniel Levy

Direct data on corruption and its prevalence is scarce because of the illegal nature of corruption. Based on first-hand account, this paper offers evidence on corrupt price setting and price adjustment mechanisms that were illegally employed under the Soviet regime. The evidence is anecdotal, and it is based on personal experience during the years 1960-1971 in the Republic of Georgia, while it was still a part of the former Soviet Union. The description of the social organization of the black markets and other illegal economic activities in Georgia that I offer, depicts the creative and sophisticated ways the people in the former Soviet Union were routinely using in order to overcome the problems of constant shortages created by the country's inefficient centrally-planned command economic price system with its distorted relative prices. The description of the specific cases and events and the details of illegal arrangements that were employed in Georgia's black markets, offers a glimpse of quite explicit micro-level evidence on various types of corruption that were common in Georgia, where rent-seeking behavior led to emergence of remarkably well-functioning black markets. The evidence I describe, underscores again the power of incentives in a rent-seeking society.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0605.

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Date of creation: Jul 2006
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Handle: RePEc:emo:wp2003:0605
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