PRICE REFORM AND WELFARE - A TRANSITION MODEL WITH QUEUING

We develop a general equilibrium model of an exchange economy with rel ative price distortions, where markets for consumption goods are clear ed by resource-wasting queues. In general, greater distortions in rela tive prices lead to lower social welfare. We show; however, that in so me cases a free market equilibrium may not exist if subsistence needs for commodities such as food are sufficiently high. In such an instanc e, removing price distortions will actually lower aggregate welfare.