Large-Scale Privatization in Transition Economies

Raul Laban and Holger C Wolf

American Economic Review, 1993, vol. 83, issue 5, 1199-1210

Abstract: To explain the slow progress of mass privatization programs in Eastern Europe, the authors present a model based on a positive spillover between aggregate privatization and the individual expected return to privatization, derived from a potential populist backlash if costly reforms do not bring forth sufficient aggregate privatization. The model allows for the simultaneous existence of a pessimistic zero-privatization trap and an optimistic full-privatization equilibrium defined by a critical mass of expected privatization. While both privatization subsidies and minimum-income guarantees can by themselves secure coordination on the optimistic equilibrium, the financing constraint may offset the direct effect. Copyright 1993 by American Economic Association.

Date: 1993
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