Rent-seeking and perestroika

Abstract

Recent developments in the Soviet-Union suggest a modest opening of the Soviet economy. So far, however, local observers often report increasing levels of black market transactions and further reductions in store supplies of historically scarce goods. In this short paper, the question of economic opening will be analyzed from a public choice perspective. The new policy penalizes black market transactions to a lesser extent which facilitates resale of scarce goods on the black market. It will be argued that it is in the interest of officials, i.e., politicians, bureaucrats and producers of scarce goods to support a legalization of the black market. Officials have access to scarce (but low-priced) goods and can gain rents from resale in a secondary market. Furthermore, they have an incentive to reduce shop supplies for more profitable black-market resale. Rentseeking activities might therefore help to explain some of the recent events in the Soviet-Union.