The political economy of suppressed markets

The purpose of this book is to examine the economic consequences of controls and rent seeking activity in what are for convenience called 'suppressed markets'. Suppressed markets are markets where the imposition of regulations and controls result in distortions to normal market behaviour and where alternative mechanisms are developed to replace or substitute for free market activity. A significant feature of such markets is rent seeking and other directly unproductive profit seeking activity that results from the imposition of such controls. The economic behaviour of two different kinds of suppressed markets is examined. Firstly, the economic behaviour in 'partially suppressed' or 'dual' markets is looked at, where government controls are imposed in a manner that attempts to replace market forces in a designated subset of a total market for a commodity, leaving 'free' market forces to operate in the residual subset. Secondly, the economic behaviour in 'completely suppressed' markets, where government price and quantity controls are applied to the complete output of the industry, is examined on both the demand and supply sides. The two industries examined are those of sugar and cement . This study of suppressed markets incorporates perspectives from industrial organization theory, the economics of law and crime and public choice. It goes beyond these more traditional sub-divisions in economics by examining phenomena such as black markets, rent seeking behaviour and what has been called the 'underground economy'. It has a political economy focus in that it emphasizes interest-group behaviour and the political process as an important element in explaining observed economic behaviour.