Privatization in Eastern Europe: Incentives and the Economics of Transition

The paper discusses how incentives and market structure considerations ought to guide the choice of sequencing and institutions in the privatization of state industrial property in Eastern Europe. It first reviews some essential features of private incentives and government intervention in western economies. It then analyzes whether these features are likely to carry over to the Eastern European environment, characterized by a large amount of uncertainty and a nonstationarity in its level, and by the need for substantial efficiency—and competition-oriented restructuring. Finally it draws suggestions concerning the issues of the timing of privatization, that of the introduction of a stock market, the choice among governance structures, the structure of incentives within and outside productive units, and the evolution of industrial policy during the transition process.