Shortages Under Free Prices: The Case of Ukraine in 1992


Timothy D. Lane ; Rolando Ossowski ; Alexander Sundakov

Publication Date:

January 1, 1994

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate


This paper examines the coexistence of free prices and shortages for a range of consumer goods in Ukraine during 1992. Enterprises making consumer goods were substantially free to set market-clearing prices. Yet, Ukraine’s official consumer market experienced continued shortages, while the same goods traded at higher prices in parallel markets. The paper advances a model of enterprise behavior in an environment of central allocation of inputs at preferential prices. We show that central allocation of key inputs according to perceived “need” creates incentives for excess demand to be perpetuated despite formal price liberalization. The analysis brings forth the importance of abolishing allocation mechanisms for price liberalization to bring its full efficiency effects.


Working Paper No. 1994/010



Also published in Staff Papers, Vol. 41, No. 3, September 1994.


Publication Date:

January 1, 1994



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