Privatization, market liberalization and learning in transition economies
Privatization 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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- Mathias Dewatripont & Gérard Roland, 1995.
"The design of reform packages under uncertainty,"
ULB Institutional Repository
2013/9607, ULB -- Universite Libre de Bruxelles.
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- M. Dewatripont & G. Roland, 1992. "Economic Reform and Dynamic Political Constraints," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 703-730.
- Peter Murrell, 1991. "Can Neoclassical Economics Underpin the Reform of Centrally Planned Economies?," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 59-76, Fall.
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