Working Paper: CEPR ID: DP2570
Authors: Dalia Marin
Abstract: The virtual economy argument for Russia suggests that barter -a payment in goods rather than cash - allows the parties to pretend that the manufacturing sector is producing value added by enabling this sector to sell its output at a higher price than its market value. We confront this prediction with the actual pricing behaviour of industrial sectors in the Ukraine in 1997. Based on pricing data of 165 barter deals we find no systematic difference in the pricing behaviour in non-cash transactions across sectors. What appears to matter for the pricing behaviour is whether the firm is on the selling or buying end of the barter transaction. We offer a model that sees this pricing behaviour as a mechanism to deal with the absence of trust and liquidity in the economy.
Keywords: imperfect input and capital markets; the virtual economy; trade credit; trust
JEL Codes: D20; G30; O10; P30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| trust (G21) | pricing behavior in barter deals (D49) |
| liquidity (E41) | pricing behavior in barter deals (D49) |
| trust and liquidity (E41) | noncash economy (E26) |
| economic conditions (E66) | prevalence of barter transactions (F19) |
| financial crisis in 1998 (F65) | liquidity (E41) |
| trust issues (Z13) | inflated prices on sale side of barter transactions (E31) |
| limited options for firms (L19) | trust problem between input suppliers and producing firms (L14) |