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 the closely related "big bang" approach to economic reform. Our analysis suggests that when pursued simultaneously, privatization may actually impede the transition process following market liberalization and reduce social welfare. Our result is based on an explicit model of market learning, which is a vital component of the economic transition process. Compared to a 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 the analysis, the optimal level of privatization decreases monotonically as the level of uncertainty increases.
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Date of creation: 01 Apr 1996
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market economy; privatization; trade liberalization; Social and Behavioral Sciences;
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.
- 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.
- Goodhue, Rachael Evadne & Rausser, Gordon C. & Simon, Leo K, 1996. "Privatization, market liberalization and learning in transition economies," CUDARE Working Paper Series 788, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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