Premium
Privatization, Market Liberalization, and Learning in Transition Economies
Author(s) -
Goodhue Rachael E.,
Rausser Gordon C.,
Simon Leo K.
Publication year - 1998
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244059
Subject(s) - liberalization , economics , transition (genetics) , market economy , factor market , process (computing) , economic system , international economics , biochemistry , chemistry , computer science , gene , operating system
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.