Price adjustment under the table: Evidence on efficiency-enhancing corruption

Levy, Daniel (2007): Price adjustment under the table: Evidence on efficiency-enhancing corruption.

Abstract

Based on first-hand account, this paper offers evidence on price setting and price adjustment mechanisms that were illegally employed under the Soviet planning and rationing regime. The evidence is anecdotal, and is based on personal experience during the years 1960–1971 in the Republic of Georgia. The description of the social organization of the black markets and other illegal economic activities that I offer depicts the creative and sophisticated ways that were used to confront the shortages created by the inefficient centrally-planned command economic price system with its distorted relative prices. The evidence offers a glimpse of quite explicit micro-level evidence on various types of behavior and corruption that were common in Georgia. Rent-seeking behavior, however, led to emergence of remarkably well-functioning and efficiency enhancing black markets. The evidence, thus, underscores once again the role of incentives in a rent-seeking society.

• Item Type: MPRA Paper
• Institution: Bar-Ilan University
• Language: English
• Keywords: Corruption; Black Market; Bribe; Price System; Distorted Relative Prices; USSR; Georgia; Command Economy; Price Setting; Price Adjustment; Cost of Price Adjustment; Menu Cost
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; D - Microeconomics > D3 - Distribution > D30 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B14 - Socialist ; Marxist; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E64 - Incomes Policy ; Price Policy; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P20 - General; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification; K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P26 - Political Economy ; Property Rights; H - Public Economics > H4 - Publicly Provided Goods > H40 - General

References

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