Inefficient equilibria in transition economy
The paper studies a general equilibrium in an economy where all market participants face a bid-ask spread. The spread may be caused by indirect business taxes, middlemen rent-seeking, delays in payments or liquidity constraints or price uncertainty. Wherever it comes from the spread causes inefficie...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Wiley
1999-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Subjects: | |
| Online Access: | http://dx.doi.org/10.1155/S1026022699000308 |
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| Summary: | The paper studies a general equilibrium in an economy where all market participants face a bid-ask spread. The spread may be caused by indirect business taxes, middlemen rent-seeking, delays in payments or liquidity constraints or price uncertainty. Wherever it comes from the spread causes inefficiency of the market equilibrium. We discuss some institutions
that can decrease the inefficiency. One is second currency (barter exchange) in the inter-firm transactions. It is shown that the general equilibrium in an economy with second currency is effective though is still different from Arrow–Debreu equilibrium. Another solution can be introduction of mutual trade credit. In the economy with trade credit there are multiple
equilibria that are more efficient than original bid-ask spread but still not as efficient as Arrow–Debreu one, too. The implications for firms' integration and applicability to Russian economy are discussed. |
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| ISSN: | 1026-0226 1607-887X |