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Changing economic mechanisms: A model of the transition from budget regulation to the competitive market

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Summary

In the framework of dynamic equilibrium theory we propose a model of gradual transition from an Economy with centralized budgets regulation to a Market Economy (with self-financing). It is assumed that information about possible change of the economic mechanism affects essentially the behavior of agents. The duration of the transition period is regarded as a random variable. We study conditions when such a transition allows firms to adapt their plans to future markets and guarantees the existence of equilibrium paths. We also discuss the case of Shock Therapy (instantaneous transition) which may cause bankruptcy, jumps in prices and deficits.

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Authors and Affiliations

  1. Central Economic and Mathematical Institute, Russian Academy of Science, Krasikova 32, 117418, Moscow, Russia

    Vadim I. Arkin & Alexander D. Slastnikov

Authors
  1. Vadim I. Arkin
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  2. Alexander D. Slastnikov
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This work is supported by Russian Foundation of Basic Researches, grant 93-06-10356

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Arkin, V.I., Slastnikov, A.D. Changing economic mechanisms: A model of the transition from budget regulation to the competitive market. Econ Theory 7, 307–321 (1996). https://doi.org/10.1007/BF01213908

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  • DOI: https://doi.org/10.1007/BF01213908

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