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

34 Pages Posted: 7 Jul 2006

See all articles by Daniel Levy

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

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.

Keywords: Corruption, Black Market, Bribe, Barter Exchange, Price System, Price Adjustment, Menu Cost, Distorted Relative Prices, USSR, Command Economy, Republic of Georgia, Efficient Corruption, Anecdotal Evidence

JEL Classification: D30,E12,E31,E64,H26,H40,K42,O17,P20,P26,Z13

Suggested Citation

Levy, Daniel, Price Adjustment Under the Table: Evidence on Efficiency-Enhancing Corruption. European Journal of Political Economy, Forthcoming; Emory Law and Economics Research Paper No. 06-12; Emory Public Law Research Paper No. 06-20. Available at SSRN: https://ssrn.com/abstract=913721

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Wilfrid Laurier University
75 University Ave W.
Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://rcea.org/

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