Shortages Under Free Prices: The Case of Ukraine in 1992
Summary:
This paper examines the coexistence of free prices and shortages for a range of consumer goods in Ukraine during 1992. Enterprises making consumer goods were substantially free to set market-clearing prices. Yet, Ukraine’s official consumer market experienced continued shortages, while the same goods traded at higher prices in parallel markets. The paper advances a model of enterprise behavior in an environment of central allocation of inputs at preferential prices. We show that central allocation of key inputs according to perceived “need” creates incentives for excess demand to be perpetuated despite formal price liberalization. The analysis brings forth the importance of abolishing allocation mechanisms for price liberalization to bring its full efficiency effects.
Series:
Working Paper No. 1994/010
Subject:
Environment Inflation Price controls Prices Tax incentives
Notes:
Also published in Staff Papers, Vol. 41, No. 3, September 1994.
English
Publication Date:
January 1, 1994
ISBN/ISSN:
9781451926606/1018-5941
Stock No:
WPIEA0101994
Pages:
28
Please address any questions about this title to publications@imf.org