Privatization, market liberalization and learning in transition economies
AbstractPrivatization and market liberalization are widely considered to be complementary reforms in transition economies. This paper challenges this view and closely related "big bang" approach to economic reform. Our analysis suggests that when pursued too vigorously, privatization may actually impede the transition process following market liberalization. Our result is based on an explicit model of market learning, which is a vital component of the economic transition process. Compared to fully-functioning market in a mature market economy, a market in transition is characterized by greater uncertainty regarding market conditions, including free market equilibrium levels of prices and quantities. Market participants must learn about these conditions through their participation in the market process. When the effects of learning are incorporated into analysis, less than full privatization is optimal when the costs of learning are sufficiently important.
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Bibliographic InfoPaper provided by University of California at Berkeley, Department of Agricultural and Resource Economics and Policy in its series CUDARE Working Paper Series with number 788.
Length: 35 pages
Date of creation: 1996
Date of revision:
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Postal: University of California, Giannini Foundation of Agricultural Economics Library, 248 Giannini Hall #3310, Berkeley CA 94720-3310
Other versions of this item:
- Gordon C. Rausser & Leo K. Simon, 1998. "Privatization, Market Liberalization, and Learning in Transition Economies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(4), pages 724-737.
- Goodhue, Rachael E. & Rausser, Gordon C. & Simon, Leo K., 1996. "Privatization, market liberalization and learning in transition economies," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt6vw536q0, Department of Agricultural & Resource Economics, UC Berkeley.
- Rachael E. Goodhue & Gordon C. Rausser & Leo K. Simon, 1998. "Privatization, Market Liberalization and Learning in Transition Economies," UWO Department of Economics Working Papers 9805, University of Western Ontario, Department of Economics.
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