Application of Mathematical Methods in Economic Research

In the process of development of economics, theoretical appraisals of different phenomena have always been accompanied by definite quantitative characteristics. Models of such combinations of qualitative and quantitative analysis are to be found in the works of the classics of Marxism-Leninism.

THE PARALLEL MARKET IN CENTRALLY PLANNED ECONOMIES

This paper presents some general-equilibrium models of the parallel market in centrally planned economies. The models are based on the hypotheses that private firms can operate more efficiently than bureaucratically-run state enterprises and that Soviet-type economies are characterized by price controls and quantitative allocations. The state's enforcement policy is explicitly modeled. Although the welfare implications of the parallel market for workers are ambiguous in general, under a variety of circumstances they turn out to be negative. For instance, responding to the shortage created by price controls, illegal firms divert resources from the official economy into the parallel market. The result is a higher price in the parallel market without any increase in the total supply of the good. Copyright 1989 Blackwell Publishers Ltd..