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 Western Ontario, Department of Economics in its series UWO Department of Economics Working Papers with number 9805.
Date of creation: May 1998
Date of revision:
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Web page: http://economics.uwo.ca/research/research_papers/department_working_papers.html
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 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.
- 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.
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