CROSS-SUBSIDIZATION AS AN ELEMENTOF GOVERNMENT REGULATION OF THE ECONOMY

Abstract

Economists explore cross-subsidization as price discrimination, when the price for some stakeholders is set
below marginal costs due to the fact that for the other entities the price is set above marginal costs. Based on a study of
government regulation in the Belarusian institutional system, we have identified other forms of economic discrimination
that government institutions use to solve priority economic and social problems:
– financial cross-subsidization — establishing differentiated interest rates on credit resources depending on the
category of the loan recipient;
– capital cross-subsidization — joining unprofitable business entities to profitable ones;
– production cross-subsidization — the use of mechanisms for the supply of products at fixed prices to fulfill
a state order.
Cross-subsidization has not become a self-sustaining institution, but is just a tool for solving global problems
that have been postponed for the long term due to the significant costs of institutional transformation, for which most
stakeholders are not ready.