A GENERAL-MODEL OF THE SOVIET CONSUMER

We study consumption and savings in a Soviet-type economic environment. The model fits into a standard dynamic programming framework so that we can invoke the results of that theory to build a tractable dynamic setup that incorporates many key aspects of reality. The probability distribution over wealth is uniformly bounded in time and converges to a steady state. We prove that rationing, queuing, and parallel markets do not necessarily generate any savings at all. We then show how it is possible to develop both speculative and precautionary savings motives based on random fluctuations in these conditions. (C) 1995 Academic Press, Inc.