Levy Price Adjustment Under the Table

Price Adjustment under the Table

Daniel Levy* Department of Economics Bar-Ilan University Ramat-Gan 52900 ISRAEL Tel: +972-3-531-8331 Fax: +972-3-535-3180 Email: Levyda@mail.biu.ac.il and Department of Economics Emory University Atlanta, GA 30322 Email: econdl@emory.edu

Last Revision: July 3, 2006

JEL Codes: B14, D30, D73, E64, H26, H40, K42, O17, P20, P26, Z13 Key Words: Efficient Corruption, Black Market, Bribe, Price System, Barter Exchange, Command Economy, Anecdotal Evidence, USSR, Republic of Georgia

* I am grateful to Arye Hillman for his comments, guidance, and especially the encouragement, to Toke Aidt and Bob Barsky for useful conversations, to Adi Schnytzer for comments, and to Steve Ziliak for his help in locating some relevant references. In addition, I thank the members of my extended family and especially my brothers Abraham, Isaac, Pinkhas, Samuel, and Joseph for helping me gather many of the details of the events reported here, and Avihai Levy and Sarit Levy for comments. All errors are mine.

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Price Adjustment under the Table

Abstract

Direct data on corruption and its prevalence is scarce because of the illegal nature of corruption. Based on first-hand account, this paper offers evidence on corrupt price setting and price adjustment mechanisms that were illegally employed under the Soviet regime. The evidence is anecdotal, and it is based on personal experience during the years 1960–1971 in the Republic of Georgia, while it was still a part of the former Soviet Union. The description of the social organization of the black markets and other illegal economic activities in Georgia that I offer, depicts the creative and sophisticated ways the people in the former Soviet Union were routinely using in order to overcome the problems of constant shortages created by the country’s inefficient centrally-planned command economic price system with its distorted relative prices. The description of the specific cases and events and the...