Inefficient equilibria in transition economy

The paper studies a general equilibrium in an economy where all market part icipants face a bid-ask spread, The spread may be caused by indirect busine ss taxes, middlemen rent-seeking, delays in payments or liquidity constrain ts or price uncertainty. Wherever it comes from the spread causes inefficie ncy of the market equilibrium, We discuss some institutions that can decrea se the inefficiency. One is second currency (barter exchange) in the inter- firm transactions. It is shown that the general equilibrium in an economy w ith second currency is effective though is still different from Arrow-Debre u equilibrium. Another solution can be introduction of mutual trade credit, In the economy with trade credit there are multiple equilibria that are mo re efficient than original bid-ask spread but still not as efficient as Arr ow-Debreu one, too. The implications for firms' integration and applicabili ty to Russian economy are discussed. The paper generalizes some results obtained of research work that has been done in the Department of Mathematical Modeling of Economic Systems of Comp uting Center, Russian Academy of Science under Academician Petrov over last few years (Petrov et al, 1996, Essays on Mathematical Modelling of Economy : Energoatomizdat.) We have successfully used some models of inefficient eq uilibrium in several applied projects.