Privatization, Market Liberalization and Learning in Transition Economies

Working Paper no. 788

Posted: 5 Sep 1997

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

U.C. Berkeley, Dept of Agricultural and Resource Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 1996

Abstract

Privatization and market liberalization are widely considered to be complementary reforms in transition economies. This paper challenges this view and the closely related "big bang" approach to economic reform. Our analysis suggests that when pursued simultaneously, privatization may actually impede the transition process following market liberalization and reduce social welfare. Our result is based on an explicit model of market learning, which is a vital component of the economic transition process. Compared to a 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 e ects of learning are incorporated into the analysis, the optimal level of privatization decreases monotonically as the level of uncertainty increases.

JEL Classification: L33, P42,P51

Suggested Citation

Goodhue, Rachael E. and Rausser, Gordon C. and Simon, Leo K., Privatization, Market Liberalization and Learning in Transition Economies (May 1996). Working Paper no. 788, Available at SSRN: https://ssrn.com/abstract=37910

Rachael E. Goodhue (Contact Author)

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

One Shields Avenue
Davis, CA 95616
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530-752-5614 (Fax)

Gordon C. Rausser

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

207 Giannini Hall no. 3310
Berkeley, CA 94720
United States
510-642-6591 (Phone)
510-643-0287 (Fax)

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

Leo K. Simon

U.C. Berkeley, Dept of Agricultural and Resource Economics ( email )

207 Giannini Hall
Berkeley, CA 94720
United States
510-642-8430 (Phone)
510-643-8911 (Fax)

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