The Virtues of Gradualism and Legitimacy in the Transition to a Market Economy
This paper presents a simplified model of sectoral restructuring in Eastern Europe. A move towards allocative efficiency is desired by the reform-minded government, but the shift to higher productivity which such efficiency requires would lead to massive layoffs and labour reallocation in the transition period. We look at the impact of political constraints (unanimity and/or majority worker approval) on reform proposals when the government faces a heterogeneous workforce, holding private information on relative outside opportunities. When the budgetary consequences of exit compensations are so important as to make partial reforms preferable to full reforms, gradualism emerges as the optimum in a dynamic context without government commitment. It is also shown that under democratic majority rule, a government in control of the agenda of reforms can win majority approval for plans which end up hurting majority interests intertemporally by threatening to switch majorities in future reform proposals.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Apr 1991|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:538. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.