Transition to the market in the former Soviet Union: Three essays

This dissertation examines some aspects of the transition process in the former Soviet Union, including urban housing, the geography of trade flows, and the behavior of an employee-dominated firm. The first essay explores the fundamentals of the Moscow housing market. It establishes a positive and statistically significant relationship between household income and housing expenditures, and estimates the equations determining market participation and housing demand. The variables that explain housing ownership in market economies are the same as those that determine market participation in Moscow. Contrary to market economies, however, the single most important determinant of market participation is the household\u27s potential for large informal income. The housing demand parameters indicate that Moscow housing falls into a typical pattern of a housing market with a highly priced minimum bundle and low income elasticity, which potentially creates economic inefficiencies and presents hurdles for the expansion of the market sector. The second essay shows how regional conflicts, creating an artificial geography of the region, affect the international trade of the South Caucasus countries (Armenia, Georgia, and Azerbaijan) negatively. I examine these relations through the analyses of elevated transport costs, missing exports (in the framework of the gravity model), and opportunities for export creation. Alleviating trade distortions will bring about positive short-term effects including the rationalization of trade flows and a major increase in trade volumes, as quantified in the essay. The third essay analyzes the theoretical behavior of an employee-dominated firm under conditions common in an early transition to the market, such as high transaction costs, agency problem, input price shocks, and the fluctuations of the firm\u27s profitability. Economic modeling shows that under these conditions, a labor-dominated firm tends to generate higher output and employment levels than a traditional capitalist firm. At the same time, the weaknesses of labor-dominated firm hinder corporate restructuring. The degeneration of an employee-dominated firm into more conventional ownership structures is taking place, albeit at a slow pace