Privatization, Market Liberalization, and Learning in Transition Economies

14 Pages Posted: 27 Mar 2020

See all articles by Rachael E. Goodhue

Rachael E. Goodhue

University of California, Davis - Department of Agricultural and Resource Economics

Gordon C. Rausser

University of California, Berkeley - Department of Agricultural and Resource Economics

Leo K. Simon

University of California

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Date Written: November 1998

Abstract

Privatization and market liberalization are widely considered to be complementary reforms in transition economies. This article challenges this view and the closely related “big bang” approach: when pursued too vigorously, privatization may impede the transition process following liberalization. Our result is based on an explicit model of market learning. Compared to a mature market, a market in transition is characterized by greater uncertainty regarding market conditions, including equilibrium prices and quantities. Economic actors must learn about these conditions through their participation in the market process. Less than full privatization is optimal if the costs of learning are sufficiently important.

Keywords: economies in transition, market learning, privatization, L330, P210, P300

Suggested Citation

Goodhue, Rachael E. and Rausser, Gordon C. and Simon, Leo K., Privatization, Market Liberalization, and Learning in Transition Economies (November 1998). American Journal of Agricultural Economics, Vol. 80, Issue 4, pp. 724-737, 1998, Available at SSRN: https://ssrn.com/abstract=3561795 or http://dx.doi.org/10.2307/1244059

Rachael E. Goodhue (Contact Author)

University of California, Davis - Department of Agricultural and Resource Economics ( email )

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Davis, CA 95616
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Gordon C. Rausser

University of California, Berkeley - Department of Agricultural and Resource Economics ( email )

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HOME PAGE: http://are.berkeley.edu/~rausser/

Leo K. Simon

University of California

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