Price Liberation And Local Resistance: A Theory For Economies In Transition

Daniel Berkowitz

No 292723, SSRI Workshop Series from University of Wisconsin-Madison, Social Systems Research Institute

Abstract: This paper models the incentives of local governments in formally centrally planned economies to resist a price liberalization in the consumer market. It is argued that many of these governments have a consumption bias and are willing to forego a unit of local state enterprise profit to in order to increase consumer welfare. The existence of a consumption bias explains why a local government would continue to hold down state sector prices when private capacity holdings are sufficiently low. It also predicts that once private capacity holdings reach a sufficiently large level, a local government would both increase consumer welfare and local budgetary revenues by supporting a price liberalization.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 30
Date: 1993-02
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwssri:292723

DOI: 10.22004/ag.econ.292723

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