Does Sequencing of Privatization Matter in Reforming Planned Economies?

Author/Editor:

Aasim M. Husain ; Ratna Sahay

Publication Date:

February 1, 1992

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1992/013

Subject:

Competition Economic sectors Economic theory Financial markets Privatization Public sector Supply shocks

Notes:

Also published in Staff Papers, Vol. 39, No. 4, December 1992.

English

Publication Date:

February 1, 1992

ISBN/ISSN:

9781451924732/1018-5941

Stock No:

WPIEA0131992

Pages:

38

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