The goal of our paper is to study the internal consistency of the privatization policy in transitional economies. Private sector development not only fosters growth but also brings a fall in labor hoarding and an increase in unemployment. Governments must arbitrate between these two conflicting objectives, by means of selecting an appropriate privatization policy. By assumption, privatization may be either rapid or gradual. It is shown that in a dynamic framework, with individuals forming rational expectations, an employment-oriented government may however pursue a rapid privatization policy, at least during an initial period of time. This allows expectations to be manipulated, in order to achieve higher employment in the future. At that stage, seemingly contradicting the former policy, such a government will slow down the privatization speed. Our model provides an explanation for the experience with privatization in many Eastern European countries, where, after an introductory wave of much publicised sales, the process of privatising the bulk of industrial enterprises has been halted.
BESANCENOT, D. and VRANCEANU, R. (1995). Cohérence temporelle et politique de privatisation dans les économies en transition. ESSEC Business School.