Observation on the Nature of Russia's Virtual Economy

Abstract:     
The rapid expansion in Russia of the virtual economy, a system characterized by a network of barter, has recently received much attention. This article analyzes the origin, the nature, efficiency and welfare implication, of the virtual economy. While the system is criticized by many economists as a retreat from reform, this article argues that the virtual economy has merit and economic rationality, given the special circumstances in Russia. In particular, the system results in a net welfare gain, and it functions by using its own criterion of cost efficiency.

JEL Classification: P20

Accepted Paper Series