Re-evaluation of Welfare Changes during the Transition in Poland

Sonya Kostova Huffman, Stanley R. Johnson
November 2000  [00-WP 255]

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Huffman, S.K. and S.R. Johnson. 2000. "Re-evaluation of Welfare Changes during the Transition in Poland." Working paper 00-WP 255. Center for Agricultural and Rural Development, Iowa State University.


The costs of shortages and rationing are not captured by standard consumer price indices. Thus the change in real gross domestic product (GDP) per capita is an overestimate of welfare losses in transition economies. In this study the authors use virtual prices to calculate new cost-of-living indices, making it possible to construct more accurate pre- and post-reform welfare comparisons. The results for Poland using virtual prices show a 62 to 84 percent decline in welfare over the transition period of 1987 to 1992. This welfare loss is approximately one-third the value obtained using actual prices.