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Trust vs Illusion: What is driving Demonetization in Russia?


  • Marin, Dalia


The virtual economy argument for Russia suggests that barter allows the parties to pretend that the manufacturing sector is producing value by enabling this sector to sell its output at a higher price than its market value. We confront this prediction with the actual pricing behavior of industrial sectors in the Ukraine in 1997. Based on pricing data of 165 barter deals we find no systematic difference in the pricing behavior in barter across sectors. What appears to matter for the pricing behavior is whether the sector is on the selling or buying end of the barter transaction. We offer an alternative explanation which sees this pricing behavior as a mechanism to deal with the absence of trust and financial discipline in the economy.

Suggested Citation

  • Marin, Dalia, 2000. "Trust vs Illusion: What is driving Demonetization in Russia?," Discussion Papers in Economics 73, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:73

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    References listed on IDEAS

    1. Perotti, E. C., 1998. "Inertial credit and opportunistic arrears in transition," European Economic Review, Elsevier, vol. 42(9), pages 1703-1725, November.
    2. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-540, September.
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    Cited by:

    1. Kim, Byung-Yeon & Pirttila, Jukka, 2004. "Money, barter, and inflation in Russia," Journal of Comparative Economics, Elsevier, vol. 32(2), pages 297-314, June.
    2. Leonid KOSALS, 2005. "Industrial Defense Enterprises in the Russian Transition to a Capitalist System: Institutional Restrictions on Development," The Journal of Comparative Economic Studies (JCES), The Japanese Society for Comparative Economic Studies (JSCES), vol. 1, pages 11-23, July.
    3. Vasily Astrov & Korkut Boratav & Sandor Richter, 2002. "Monthly Report 05/2002," wiiw Monthly Reports 2002-05, The Vienna Institute for International Economic Studies, wiiw.

    More about this item


    imperfect input and capital markets ; the virtual economy ; trade credit ; trust ; contract enforcement;

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General


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