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Voucher Privatization: A detour on the road to transition?

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  • Barbara G. Katz
  • Joel Owen

Abstract

We explore an overlooked aspect of the design of the Czech voucher privatization programme, namely, the consequences of allowing individuals to distribute their vouchers among the voucher privatization funds (VPFs). We develop and analyse a model of voucher privatization in which we study the problem facing individuals who invest their vouchers in VPFs which, in turn, are able to use their skills to alter the performances of the firms in which they acquire shares. The VPFs have different skills and, by their bids and subsequent joint ownership patterns, affect the performances of the firms in their funds. We show that even in the case in which voucher holders have identical and full information, and wish to allocate their vouchers to the VPFs in a manner consistent with the maximization of economy–wide profit, a coordination failure generally prevents the implementation of this efficient outcome. Uncertainty, as well as differing payouts by the VPFs, is shown to exacerbate the problem. We conclude that there was an inherent flaw in the design of the Czech voucher scheme. JEL classification: D44, L33, P21, G11.

Suggested Citation

  • Barbara G. Katz & Joel Owen, 2002. "Voucher Privatization: A detour on the road to transition?," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(3), pages 553-583, November.
    • Handle: RePEc:bla:etrans:v:10:y:2002:i:3:p:553-583
    DOI: 10.1111/1468-0351.t01-1-00125
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    Cited by:

    1. Elena Yusupova, 2006. "Information Asymmetry, Share Mispricing and the Coordination Problem: Investor Portfolio Choice in Czech Voucher Privatization," CERGE-EI Working Papers wp301, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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