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Abstract

The costs of shortages/rationing are not captured by standard consumer price indices. Thus the change in real GDP per capita is an over estimate of welfare losses in transition economies. In this study, virtual prices are used 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 62-84 percent decline in welfare over the transition 1987-92. This welfare loss is approximately one-third the value obtained using actual prices.

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