Law in Transition and Development: The Case of Russia

The rise of barter and non-cash payments has become a dominant feature of the Russian transition to a market economy. This paper confronts with empirical evidence two approaches to explain barter in Russia: the ’illusion view’ and the ’trust view’ of barter. The ’illusion view’ suggests that barter allows the parties to pretend that the manufacturing sector in Russia is producing value added by enabling this sector to sell its output at a higher price than its market value. The ’trust view’ sees barter as an institution to deal with the absence of trust and liquidity in the Russian economy. We confront the prediction of both explanations with actual data on barter in Ukraine in 1997. The data reject the ’illusion view‘ in favor of the ‘trust view‘ of barter

U.S. Domestic Barter : an Empirical Investigation

This paper studies the barter industry developed in North America during he 1950s, pointing ut some of its main characteristics. Thus, it examines its two main sectors : (i) Corporate Barter and (ii) Commercial Barter. Contrary to expectations, the analysis of official data shows that this phenomenon is essentially pro-cyclical for the Commercial Barter component. Moreover, commecial barter activity turns out to be complementary to the cash economy. While the two sectors display some differences in their pattern, they both help firms to increase their profits.E-Barter; Corporate Barter; Economic Cycle

Money, Barter and Inflation in Russia

Using a macroeconometric framework, this paper analyses relationships among money, barter and inflation in Russia during the transition period. Following the development of a theoretical framework that introduces barter in a standard small open economy macro model, we estimate our model using structural cointegration and vector error correction methods. Our findings suggest that barter has resulted partly from output losses and partly from a reduction in real money balances, but to a lesser extent. There is some evidence that the effect of barter on prices is less than that of money. We also find that increases in barter are affected by banking failure. Our results imply that a macro model that excludes barter fails to capture all the relevant information for inference on money and inflation in Russia.Barter, money, inflation, cointegration, error-correction mechanism, Russia

Performance of the Barter, the Differential Evolution and the Simulated Annealing Methods of Global Optimization on Some New and Some Old Test Functions

In this paper we compare the performance of the Barter method, a newly introduced population-based (stochastic) heuristic to search the global optimum of a (continuous) multi-modal function, with that of two other well-established and very powerful methods, namely, the Simulated Annealing (SA) and the Differential Evolution (DE) methods of global optimization. In all, 87 benchmark functions have been optimized 89 times. The DE succeeds in 82 cases, the Barter succeeds in 63 cases, while the Simulated Annealing method succeeds for a modest number of 51 cases. The DE as well as Barter methods are unstable for stochastic functions (Yao-Liu#7 and Fletcher-Powell functions). In particular, Bukin-6, Perm-2 and Mishra-2 functions have been hard for all the three methods. Seen as such, the barter method is much inferior to the DE, but it performs better than SA. A comparison of the Barter method with the Repulsive Particle Swarm method has indicated elsewhere that they are more or less comparable. The convergence rate of the Barter method is slower than the DE as well as the SA. This is because of the difficulty of ‘double coincidence’ in bartering. Barter activity takes place successfully in less than one percent trials. It may be noted that the DE and the SA have a longer history behind them and they have been improved many times. In the present exercise, the DE version used here employs the latest (available) schemes of crossover, mutation and recombination. In comparison to this, the Barter method is a nascent one. We need a thorough investigation into the nature and performance of the Barter method. We have found that when the DE optimizes, the terminal population is homogenous while in case of the Barter method it is not so. This property of the Barter method has several implications with respect to the Agent-Based Computational Economics

Price Discrimination Through Barter: A Theory and Evidence from Russia

We build a model of imperfect competition where firms can sell for cash or in-kind payments. Barter is indivisible, and there is no double coincidence of wants. Despite these deficiencies, barter emerges in equilibrium as a means of price discrimination if market power is sufficiently concentrated. The model predicts negative correlation between number of sellers and share of barter in sales. We also show that barter disappears at certain level of concentration. Using survey data on Russian firms, we show that empirical evidence is consistent with predictions of the model. Sergei Guriev, Ph.D.

Debt Overhang and Barter in Russia

In this paper we study, both theoretically and empirically, the relationship between barter and the indebtedness of Russian firms. We build a model in which a firm uses barter to protect its working capital against outside creditors even when barter involves high transaction costs. The main innovation of our work is to allow renegotiation between the firm and its creditors. If the creditors are rational, they often agree to postpone debt payments in order to avoid destroying the firm's working capital. It turns out, however, that even if the firm cannot ensure it will not divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater the debt overhang, the more likely the use of barter, and although the possibility of debt restructuring reduces barter, it does not eliminate it altogether. We also discuss the role of the government bond market and weak bankruptcy legislation. The firm-level evidence is consistent with the model's predictions.barter, demonetisation, debt overhang, renegotiations

Barter in Russia: Liquidity Shortage versus Lack of Restructuring

The rapid growth of barter is one of the most surprising phenomena in Russia: As a percentage of industrial sales it steadily increased from 5% in 1992 to nearly 55% in 1998. Unknown in CEEC's transition countries, barter is only one aspect of the Russian economy's demonetisation [process, along with dollarisation, growing arrears, and the widespread use of veksels and offsets. Barter is often seen as the consequence of the lack of restructuring, but some authors argue that it is a mechanism used to avoid shutting down potentially viable firms, in a context of market imperfections. The implications differ depending on the analysis chosen: in the first case, an expansionary monetary policy might not be appropriate, while the contrary is true if the demonetisation process jeopardizes potentially good enterprises. This paper aims to assess this phenomenon in the Russian economy. The paper's main contribution to work in this field (reviewed and documented in section II) is to highlight two different rationales for barter. Before studying the latter more closely, section III uses official monthly data collected by the central bank of Russia, the Goskomstat, and the Russian Economic Barometer (REB), to emphasize the macro-economic features of barter in Russia, and, more specifically, the link between monetary policy and bartering activity. It appears that macroeconomic policy and macroeconomic indicators are unable to explain the whole process. In section IV, quarterly statistics for 1995 and 1996 taken from the REB survey of roughly 200 firms make it possible to implement a more qualitative survey. The conclusion is striking: barter is used by potentially viable firms as a way of avoiding closure, while at the same time financing increasing inventories and soft goods in the case of indebted firms who use barter transactions, bank credit and choose to accumulate arrers in order to avoid restructuring.http://deepblue.lib.umich.edu/bitstream/2027.42/39655/3/wp271.pd

Barter for price discrimination? A theory and evidence from Russia

Unprecedented demonetization of Russia’s transition economy has been explained by tight monetary policy, tax evasion and poor …nancial intermediation. We show that market power may also be important. We build a model of imperfect competition in which …rms use barter for price discrimination. The model predicts a positive relationship between concentration of market power and share of barter in sales. The model has multiple equilibria which may explain persistence of barter in Russia but not in other economies. Using a unique dataset on barter transactions in Russia, we show that the …rm-level evidence is consistent with the model’s predictions.barter, price discrimination, Cournot oligopoly

Barter in Transition Economies: Competing Explanations Confront Ukrainian Data

In this paper we survey the common explanations of barter in transition economies and expose them to detailed survey data on 165 barter deals in Ukraine in 1997. The evidence does not support the notion that soft budget constraints, lack of restructuring, or that the virtual economy are the driving forces behind barter. Further, tax avoidance is only weakly associated with the incidence of barter in Ukraine. We then explore an alternative explanation of barter as a mechanism to address transitional challenges where capital markets and economic institutions are poorly developed. First, barter helps to maintain production by creating a deal-specific collateral which softens the liquidity squeeze in the economy when credit enforcement is prohibitively costly. Second, barter helps to maintain production by preventing firms to be exploited by their input suppliers when suppliers' bargaining position is very strong due to high costs of switching suppliers. Thus, in the absence of trust and functioning capital markets barter is a self-enforcing response to imperfect input and financial markets in the former Soviet Union. The paper concludes by discussing potential long-term costs of barter arrangements, and by suggesting particular pitfalls of expansionary monetary policy in barter economies such as Ukraine and Russia

Barter relationships

We offer a simple economic model of repeated barter to explore current economic exchange in Russia: individuals trade with each other in a dynamic environment where the threat of dissolving the relationship constrains the incentives to cheat. We show how the value of future interactions affects the willingness of individuals to trade with each other; only when rates of interaction are large can trust compensate for an absence of money. Moreover, when trading relationships are asymmetric – either in the trading partners’ values for each other’s goods or in their relative bargaining power – the resulting barter allocations are distorted, as goods must be used for liquidity reasons. When third-party middlemen exist who can facilitate barter, they command a premium for their services, and have preferences for improved liquidity which may or may not correspond with the other traders in the barter economy. Fourth, we demonstrate that the restriction of trading to tight trading networks may be a socially efficient response to insufficient barter interactions. Finally, we consider how liquidity constraints affect pricing, and illustrate how the existence of a barter market can mute incentives to change prices in response to credit crunches.Barter, non-monetary exchange