The "How" of Privatization in Central and Eastern Europe

Abstract: This paper analyzes how governments in transition economies, interested in their budgetary situation privatize large enterprises. While informal discussions favour voucher privatization my formal model of privatization suggests that voucher privatization may be hard to implement: In contrast to piecemeal privatization it generates no revenues that can be used to support workers which become unemployed. Therefore, from the political economy viewpoint piecemeal privatization will resultin faster privatization unless governments have an ideological preference for private property or asymmetric information issues are important. The model therefore explains why governments other than the Czech have found it difficult to engage in voucher privatization.