SFB 303 Discussion Paper No. A - 474

Author: Hansen, Nico A.
Title: Privatization, Technology Choice and Aggregate Outcomes
Abstract: We present a general equilibrium model of imperfect competition to analyze different policy measures in transition economies. Due to strategic complementarities in technology choice and demand spillovers, the possibility of multiple macroeconomic equilibria arises. Those equilibria can be Pareto-ranked. Equilibria where modern technologies are employed are preferable. Technology adoption crucially depends on how property rights are distributed and which method of privatization is chosen. The existence and occurrence of 'good` equilibria is extremely fragile with respect to policy. Contrary to conventional wisdom, we show that a broad distribution of ownership rights can have favorable influence on micro-economic efficiency and may therefore lead to a 'good` aggregate outcome. Sales to single or core investors, if accompanied by workers' equity shares, may perform worse. Furthermore only a Big Bang approach to privatization might lead to favorable outcomes.
Keywords: privatization, transition, technology choice, multiple equilibria, demand spillovers
JEL-Classification-Number: O33, P00, E62, H32
Creation-Date: March 1995
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