Trust vs Illusion: What is driving Demonetization in Russia?

Marin, Dalia (June 2000): Trust vs Illusion: What is driving Demonetization in Russia? Discussion Papers in Economics 2000-12

Abstract

The virtual economy argument for Russia suggests that barter allows the parties to pretend that the manufacturing sector is producing value by enabling this sector to sell its output at a higher price than its market value. We confront this prediction with the actual pricing behavior of industrial sectors in the Ukraine in 1997. Based on pricing data of 165 barter deals we find no systematic difference in the pricing behavior in barter across sectors. What appears to matter for the pricing behavior is whether the sector is on the selling or buying end of the barter transaction. We offer an alternative explanation which sees this pricing behavior as a mechanism to deal with the absence of trust and financial discipline in the economy.

• Item Type: Paper (Discussion Paper)
• Keywords: imperfect input and capital markets ; the virtual economy ; trade credit ; trust ; contract enforcement
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Institutional Economics; Economics > Discussion Papers in Economics > Transition Economics
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: D20, G30, O10, P30
• Language: English