Empirical Tests of Impacts of Rationing: The Case of Poland in Transition

Sonya Kostova Huffman, Stanley R. Johnson
February 2000  [00-WP 237]

This study tests the theory of rationing, examining changes in household consumption behavior during the transition to a market economy in Poland, 1987-92. Using pre-reform data from the Polish Household Budget Survey, Huffman and Johnson develop a model of consumption under rationing and derive virtual prices for food and housing. A pre-reform Almost Ideal Demand System (AIDS) model with rationing is then used to estimate plausible values for price and income elasticities. Comparing pre-reform and post-reform (without rationing) AIDS models shows that own-price elasticities for nonrational goods are larger after the reform, and there is increased complementarity and decreased substitutability for nonrationed goods. This comparison also shows a 75 percent decline in real household welfare over the transition to a market economy.

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