Peasant supply response in rationed economies

Abstract

When peasants do not have reliable access to goods on the black market, government price controls may result in rationing of peasants' demand for consumer goods. We show that supply response is then perverse and that the economy may collapse, as exports fall and rural shortages intensify. Such a crisis may initially be disguised as peasants sell export goods to build up money stocks. We consider the policy options for governments facing such problems.