Should price reform proceed gradually or in a"big bang?"

Sweder van Wijnbergen

No 702, Policy Research Working Paper Series from The World Bank

Abstract: Should countries such as Poland or the USSR move toward more flexible prices gradually or in a"big bang?"Why is it that governments committed to eventual price flexibility so often seem to be unable to let go of"temporary"controls? Why, after price increases early in a program of price controls, does output often rise at the same time that shortages seem to increase? Theauthor argues that intertemporal speculation, hoarding, and the political economy of price control help explain these puzzles. The interaction between shortages and the political vulnerability of reformist governments to early perceptions of failure is a strong argument against gradualism in the decontrol of prices.

Keywords: Markets and Market Access; Access to Markets; Environmental Economics&Policies; Consumption; Economic Theory&Research (search for similar items in EconPapers)
Date: 1991-06-30
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