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Incentives and the Management of Enterprises in Economic Transition: Capital Markets Are Not Enough

  • Mayhew, Ken
  • Seabright, Paul

This article considers enterprise behavior during the process of restructuring in Eastern Europe. It is concerned with how to construct controls and incentives for efficient management behavior. By themselves, privatization and freely functioning capital markets (specifically markets for shares) will be inadequate to discipline inefficient management. Therefore the disciplines imposed by other stakeholders--creditors and the workforce--are also considered. After surveying the theoretical arguments underlying these issues, the article contrasts the progress of restructuring in Eastern Germany and Poland. It argues that the governments of former command economies will have to intervene actively to influence the future management of their enterprises. Meanwhile, whatever long-term outcomes emerge, in the short term failures of corporate control are in danger of resulting in highly perverse responses to orthodox macroeconomic policies. Copyright 1992 by Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Review of Economic Policy.

Volume (Year): 8 (1992)
Issue (Month): 1 (Spring)
Pages: 105-29

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Handle: RePEc:oup:oxford:v:8:y:1992:i:1:p:105-29
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