Does Sequencing of Privatization Matter in Reforming Planned Economies?

Aasim Husain and Ratna Sahay

No 1992/013, IMF Working Papers from International Monetary Fund

Abstract: Although a centerpiece of the reform process in Central and Eastern Europe, large-scale privatization cannot be undertaken all at once and policymakers inevitably face the choice of privatizing some sectors before others. This paper analyzes the allocative efficiency implications of alternate sequences of privatization in a reforming planned economy with two sectors—an input-producing upstream sector and a final goods-producing downstream sector. The model focuses on the link, through a market for intermediate inputs, between the two sectors. The impact of exogenous shocks to the two sectors are highlighted to show how the inflexibility of public firms in responding to shocks constrains the production response of private firms operating in perfectly as well as imperfectly competitive markets.

Keywords: WP; market structure; demand shock; consumer demand; imperfect competition; upstream firm; downstream firm; representative kth firm; public firm; n firm; Privatization; Competition; Supply shocks; Public sector; Eastern Europe; Central and Eastern Europe (search for similar items in EconPapers)
Pages: 38
Date: 1992-02-01
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Citations: View citations in EconPapers (9)

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