A Theoretical Model of Barter in Russia

Abstract

This paper develops a general equilibrium model and proposes a theory to explain the main stylized facts about the growth of barter transactions in Russia during the 1990s. Because of the high opportunity cost of using fiat money, with a tight enough credit market it may be optimal for firms to barter if they have access to that transaction technology, yet the riskiest firm will keep using money. We also claim that, in the short run, Russian managers might avoid restructuring because it jeopardizes their access to alternative transaction technologies, and that this phenomenon might also take place in well-developed market economies.Barter; money; payment system; interest rate