Privatization, Market Liberalization and Learning in Transition Economies

Rachael E. Goodhue, Gordon Rausser and Leo Simon
Authors registered in the RePEc Author Service: Audra J. Bowlus ()

No 9813, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: 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.

Date: 1998
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Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Privatization, Market Liberalization, and Learning in Transition Economies (1998)
Working Paper: Privatization, market liberalization and learning in transition economies (1996)
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