Theory of Privatization in

Eastern Europe:
Literature Review
Ibolya Schindele

NOTA DI LAVORO 2.2003

JANUARY 2003
PRIV – Privatisation, Regulation, Antitrust

Ibolya Schindele, Faculty of Economics and Econometrics,

Group of Finance and Organization, University of Amsterdam

This paper can be downloaded without charge at:

The Fondazione Eni Enrico Mattei Note di Lavoro Series Index:

http://www.feem.it/web/activ/_wp.html

Social Science Research Network Electronic Paper Collection:

http://papers.ssrn.com/abstract_id=XXXXXX

The opinions expressed in this paper do not necessarily reflect the position of
Fondazione Eni Enrico Mattei
Theory of Privatization in Eastern Europe: Literature Review

Summary

This paper provides a discussion of the most important theoretical contributions to the
literature on privatization, focusing on emerging economies, and gives a summary on
recent research concerning the ways privatization might affect the development of
securities markets. In addition, the paper provides a number of policy implications,
emphasizing the trade-off between privatization and the reduction in social welfare and
the possibility that the privatization process itself may have conflicting objectives
(creation of incentive mechanisms, fairness, fast privatization).

JEL: L33, P31

Financial support from the European Commission for the project “Privatisation and
Financial Market Development” (contract n. HPSE-CT-1990-00007) is greatly
acknowledged.

Address for correspondence:

Ibolya Schindele
Department of Financial Management
Universiteit van Amsterdam
Roeterstraat 11
1018 WB Amsterdam
The Netherlands
Phone: 0031 20 525 5351
Fax: 0031 20 525 5285
E-mail: schindele@tinbergen.nl
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48
 NOTE DI LAVORO DELLA FONDAZIONE ENI ENRICO MATTEI
Fondazione Eni Enrico Mattei Working Paper Series
Our working papers are available on the Internet at the following addresses:
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SUST 1.2002 K. TANO, M.D. FAMINOW, M. KAMUANGA and B. SWALLOW: Using Conjoint Analysis to Estimate Farmers’
Preferences for Cattle Traits in West Africa
ETA 2.2002 Efrem CASTELNUOVO and Paolo SURICO: What Does Monetary Policy Reveal about Central Bank’s
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WAT 3.2002 Duncan KNOWLER and Edward BARBIER: The Economics of a “Mixed Blessing” Effect: A Case Study of the
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CLIM 4.2002 Andreas LöSCHEL: Technological Change in Economic Models of Environmental Policy: A Survey
VOL 5.2002 Carlo CARRARO and Carmen MARCHIORI: Stable Coalitions
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KNOW 8.2002 Alain DESDOIGTS: Neoclassical Convergence Versus Technological Catch-up: A Contribution for Reaching a
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NRM 9.2002 Giuseppe DI VITA: Renewable Resources and Waste Recycling
KNOW 10.2002 Giorgio BRUNELLO: Is Training More Frequent when Wage Compression is Higher? Evidence from 11
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ETA 11.2002 Mordecai KURZ, Hehui JIN and Maurizio MOTOLESE: Endogenous Fluctuations and the Role of Monetary
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KNOW 12.2002 Reyer GERLAGH and Marjan W. HOFKES: Escaping Lock-in: The Scope for a Transition towards Sustainable
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NRM 13.2002 Michele MORETTO and Paolo ROSATO: The Use of Common Property Resources: A Dynamic Model
CLIM 14.2002 Philippe QUIRION: Macroeconomic Effects of an Energy Saving Policy in the Public Sector
CLIM 15.2002 Roberto ROSON: Dynamic and Distributional Effects of Environmental Revenue Recycling Schemes:
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CLIM 16.2002 Francesco RICCI (l): Environmental Policy Growth when Inputs are Differentiated in Pollution Intensity
ETA 17.2002 Alberto PETRUCCI: Devaluation (Levels versus Rates) and Balance of Payments in a Cash-in-Advance
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Coalition 18.2002 László Á. KÓCZY (liv): The Core in the Presence of Externalities
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Network
Coalition 19.2002 Steven J. BRAMS, Michael A. JONES and D. Marc KILGOUR (liv): Single-Peakedness and Disconnected
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Network Coalitions
Coalition 20.2002 Guillaume HAERINGER (liv): On the Stability of Cooperation Structures
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Network
NRM 21.2002 Fausto CAVALLARO and Luigi CIRAOLO: Economic and Environmental Sustainability: A Dynamic Approach
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CLIM 22.2002 Barbara BUCHNER, Carlo CARRARO, Igor CERSOSIMO and Carmen MARCHIORI: Back to Kyoto? US
Participation and the Linkage between R&D and Climate Cooperation
CLIM 23.2002 Andreas LÖSCHEL and ZhongXIANG ZHANG: The Economic and Environmental Implications of the US
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ETA 24.2002 Marzio GALEOTTI, Louis J. MACCINI and Fabio SCHIANTARELLI: Inventories, Employment and Hours
CLIM 25.2002 Hannes EGLI: Are Cross-Country Studies of the Environmental Kuznets Curve Misleading? New Evidence from
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ETA 26.2002 Adam B. JAFFE, Richard G. NEWELL and Robert N. STAVINS: Environmental Policy and Technological
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SUST 27.2002 Joseph C. COOPER and Giovanni SIGNORELLO: Farmer Premiums for the Voluntary Adoption of
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SUST 28.2002 The ANSEA Network: Towards An Analytical Strategic Environmental Assessment
KNOW 29.2002 Paolo SURICO: Geographic Concentration and Increasing Returns: a Survey of Evidence
ETA 30.2002 Robert N. STAVINS: Lessons from the American Experiment with Market-Based Environmental Policies
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NRM 32.2002 Robert N. STAVINS: National Environmental Policy During the Clinton Years
KNOW 33.2002 A. SOUBEYRAN and H. STAHN : Do Investments in Specialized Knowledge Lead to Composite Good
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KNOW 34.2002 G. BRUNELLO, M.L. PARISI and Daniela SONEDDA: Labor Taxes, Wage Setting and the Relative Wage
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CLIM 35.2002 C. BOEMARE and P. QUIRION (lv): Implementing Greenhouse Gas Trading in Europe: Lessons from
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CLIM 36.2002 T.TIETENBERG (lv): The Tradable Permits Approach to Protecting the Commons: What Have We Learned?
CLIM 37.2002 K. REHDANZ and R.J.S. TOL (lv): On National and International Trade in Greenhouse Gas Emission Permits
CLIM 38.2002 C. FISCHER (lv): Multinational Taxation and International Emissions Trading
SUST 39.2002 G. SIGNORELLO and G. PAPPALARDO: Farm Animal Biodiversity Conservation Activities in Europe under
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NRM 40.2002 S .M. CAVANAGH, W. M. HANEMANN and R. N. STAVINS: Muffled Price Signals: Household Water Demand
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NRM 41.2002 A. J. PLANTINGA, R. N. LUBOWSKI and R. N. STAVINS: The Effects of Potential Land Development on
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CLIM 42.2002 C. OHL (lvi): Inducing Environmental Co-operation by the Design of Emission Permits
CLIM 43.2002 J. EYCKMANS, D. VAN REGEMORTER and V. VAN STEENBERGHE (lvi): Is Kyoto Fatally Flawed? An
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CLIM 44.2002 A. ANTOCI and S. BORGHESI (lvi): Working Too Much in a Polluted World: A North-South Evolutionary
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ETA 45.2002 P. G. FREDRIKSSON, Johan A. LIST and Daniel MILLIMET (lvi): Chasing the Smokestack: Strategic
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ETA 46.2002 Z. YU (lvi): A Theory of Strategic Vertical DFI and the Missing Pollution-Haven Effect
SUST 47.2002 Y. H. FARZIN: Can an Exhaustible Resource Economy Be Sustainable?
SUST 48.2002 Y. H. FARZIN: Sustainability and Hamiltonian Value
KNOW 49.2002 C. PIGA and M. VIVARELLI: Cooperation in R&D and Sample Selection
Coalition 50.2002 M. SERTEL and A. SLINKO (liv): Ranking Committees, Words or Multisets
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Network
Coalition 51.2002 Sergio CURRARINI (liv): Stable Organizations with Externalities
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Network
ETA 52.2002 Robert N. STAVINS: Experience with Market-Based Policy Instruments
ETA 53.2002 C.C. JAEGER, M. LEIMBACH, C. CARRARO, K. HASSELMANN, J.C. HOURCADE, A. KEELER and
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CLIM 54.2002 Scott BARRETT (liii): Towards a Better Climate Treaty
ETA 55.2002 Richard G. NEWELL and Robert N. STAVINS: Cost Heterogeneity and the Potential Savings from Market-
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SUST 56.2002 Paolo ROSATO and Edi DEFRANCESCO: Individual Travel Cost Method and Flow Fixed Costs
SUST 57.2002 Vladimir KOTOV and Elena NIKITINA (lvii): Reorganisation of Environmental Policy in Russia: The Decade of
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SUST 58.2002 Vladimir KOTOV (lvii): Policy in Transition: New Framework for Russia’s Climate Policy
SUST 59.2002 Fanny MISSFELDT and Arturo VILLAVICENCO (lvii): How Can Economies in Transition Pursue Emissions
Trading or Joint Implementation?
VOL 60.2002 Giovanni DI BARTOLOMEO, Jacob ENGWERDA, Joseph PLASMANS and Bas VAN AARLE: Staying Together
or Breaking Apart: Policy-Makers’ Endogenous Coalitions Formation in the European Economic and Monetary
Union
ETA 61.2002 Robert N. STAVINS, Alexander F.WAGNER and Gernot WAGNER: Interpreting Sustainability in Economic
Terms: Dynamic Efficiency Plus Intergenerational Equity
PRIV 62.2002 Carlo CAPUANO: Demand Growth, Entry and Collusion Sustainability
PRIV 63.2002 Federico MUNARI and Raffaele ORIANI: Privatization and R&D Performance: An Empirical Analysis Based on
Tobin’s Q
PRIV 64.2002 Federico MUNARI and Maurizio SOBRERO: The Effects of Privatization on R&D Investments and Patent
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SUST 65.2002 Orley ASHENFELTER and Michael GREENSTONE: Using Mandated Speed Limits to Measure the Value of a
Statistical Life
ETA 66.2002 Paolo SURICO: US Monetary Policy Rules: the Case for Asymmetric Preferences
PRIV 67.2002 Rinaldo BRAU and Massimo FLORIO: Privatisations as Price Reforms: Evaluating Consumers’ Welfare
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CLIM 68.2002 Barbara K. BUCHNER and Roberto ROSON: Conflicting Perspectives in Trade and Environmental Negotiations
CLIM 69.2002 Philippe QUIRION: Complying with the Kyoto Protocol under Uncertainty: Taxes or Tradable Permits?
SUST 70.2002 Anna ALBERINI, Patrizia RIGANTI and Alberto LONGO: Can People Value the Aesthetic and Use Services of
Urban Sites? Evidence from a Survey of Belfast Residents
SUST 71.2002 Marco PERCOCO: Discounting Environmental Effects in Project Appraisal
NRM 72.2002 Philippe BONTEMS and Pascal FAVARD: Input Use and Capacity Constraint under Uncertainty: The Case of
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PRIV 73.2002 Mohammed OMRAN: The Performance of State-Owned Enterprises and Newly Privatized Firms: Empirical
Evidence from Egypt
PRIV 74.2002 Mike BURKART, Fausto PANUNZI and Andrei SHLEIFER: Family Firms
PRIV 75.2002 Emmanuelle AURIOL, Pierre M. PICARD: Privatizations in Developing Countries and the Government Budget
Constraint
PRIV 76.2002 Nichole M. CASTATER: Privatization as a Means to Societal Transformation: An Empirical Study of
Privatization in Central and Eastern Europe and the Former Soviet Union
PRIV 77.2002 Christoph LÜLSFESMANN: Benevolent Government, Managerial Incentives, and the Virtues of Privatization
PRIV 78.2002 Kate BISHOP, Igor FILATOTCHEV and Tomasz MICKIEWICZ: Endogenous Ownership Structure: Factors
Affecting the Post-Privatisation Equity in Largest Hungarian Firms
PRIV 79.2002 Theodora WELCH and Rick MOLZ: How Does Trade Sale Privatization Work?
Evidence from the Fixed-Line Telecommunications Sector in Developing Economies
PRIV 80.2002 Alberto R. PETRUCCI: Government Debt, Agent Heterogeneity and Wealth Displacement in a Small Open
Economy
CLIM 81.2002 Timothy SWANSON and Robin MASON (lvi): The Impact of International Environmental Agreements: The Case
of the Montreal Protocol
PRIV 82.2002 George R.G. CLARKE and Lixin Colin XU: Privatization, Competition and Corruption: How Characteristics of
Bribe Takers and Payers Affect Bribe Payments to Utilities
PRIV 83.2002 Massimo FLORIO and Katiuscia MANZONI: The Abnormal Returns of UK Privatisations: From Underpricing
to Outperformance
NRM 84.2002 Nelson LOURENÇO, Carlos RUSSO MACHADO, Maria do ROSÁRIO JORGE and Luís RODRIGUES: An
Integrated Approach to Understand Territory Dynamics. The Coastal Alentejo (Portugal)
CLIM 85.2002 Peter ZAPFEL and Matti VAINIO (lv): Pathways to European Greenhouse Gas Emissions Trading History and
Misconceptions
CLIM 86.2002 Pierre COURTOIS: Influence Processes in Climate Change Negotiations: Modelling the Rounds
ETA 87.2002 Vito FRAGNELLI and Maria Erminia MARINA (lviii): Environmental Pollution Risk and Insurance
ETA 88.2002 Laurent FRANCKX (lviii): Environmental Enforcement with Endogenous Ambient Monitoring
ETA 89.2002 Timo GOESCHL and Timothy M. SWANSON (lviii): Lost Horizons. The noncooperative management of an
evolutionary biological system.
ETA 90.2002 Hans KEIDING (lviii): Environmental Effects of Consumption: An Approach Using DEA and Cost Sharing
ETA 91.2002 Wietze LISE (lviii): A Game Model of People’s Participation in Forest Management in Northern India
CLIM 92.2002 Jens HORBACH: Structural Change and Environmental Kuznets Curves
ETA 93.2002 Martin P. GROSSKOPF: Towards a More Appropriate Method for Determining the Optimal Scale of Production
Units
VOL 94.2002 Scott BARRETT and Robert STAVINS: Increasing Participation and Compliance in International Climate Change
Agreements
CLIM 95.2002 Banu BAYRAMOGLU LISE and Wietze LISE: Climate Change, Environmental NGOs and Public Awareness in
the Netherlands: Perceptions and Reality
CLIM 96.2002 Matthieu GLACHANT: The Political Economy of Emission Tax Design in Environmental Policy
KNOW 97.2002 Kenn ARIGA and Giorgio BRUNELLO: Are the More Educated Receiving More Training? Evidence from
Thailand
ETA 98.2002 Gianfranco FORTE and Matteo MANERA: Forecasting Volatility in European Stock Markets with Non-linear
GARCH Models
ETA 99.2002 Geoffrey HEAL: Bundling Biodiversity
ETA 100.2002 Geoffrey HEAL, Brian WALKER, Simon LEVIN, Kenneth ARROW, Partha DASGUPTA, Gretchen DAILY, Paul
EHRLICH, Karl-Goran MALER, Nils KAUTSKY, Jane LUBCHENCO, Steve SCHNEIDER and David
STARRETT: Genetic Diversity and Interdependent Crop Choices in Agriculture
ETA 101.2002 Geoffrey HEAL: Biodiversity and Globalization
VOL 102.2002 Andreas LANGE: Heterogeneous International Agreements – If per capita emission levels matter
ETA 103.2002 Pierre-André JOUVET and Walid OUESLATI: Tax Reform and Public Spending Trade-offs in an Endogenous
Growth Model with Environmental Externality
ETA 104.2002 Anna BOTTASSO and Alessandro SEMBENELLI: Does Ownership Affect Firms’ Efficiency? Panel Data
Evidence on Italy
PRIV 105.2002 Bernardo BORTOLOTTI, Frank DE JONG, Giovanna NICODANO and Ibolya SCHINDELE: Privatization and
Stock Market Liquidity
ETA 106.2002 Haruo IMAI and Mayumi HORIE (lviii): Pre-Negotiation for an International Emission Reduction Game
PRIV 107.2002 Sudeshna GHOSH BANERJEE and Michael C. MUNGER: Move to Markets? An Empirical Analysis of
Privatisation in Developing Countries
PRIV 108.2002 Guillaume GIRMENS and Michel GUILLARD: Privatization and Investment: Crowding-Out Effect vs Financial
Diversification
PRIV 109.2002 Alberto CHONG and Florencio LÓPEZ-DE-SILANES: Privatization and Labor Force Restructuring Around the
World
PRIV 110.2002 Nandini GUPTA: Partial Privatization and Firm Performance
PRIV 111.2002 François DEGEORGE, Dirk JENTER, Alberto MOEL and Peter TUFANO: Selling Company Shares to
Reluctant Employees: France Telecom’s Experience
PRIV 112.2002 Isaac OTCHERE: Intra-Industry Effects of Privatization Announcements: Evidence from Developed and
Developing Countries
PRIV 113.2002 Yannis KATSOULAKOS and Elissavet LIKOYANNI: Fiscal and Other Macroeconomic Effects of Privatization
PRIV 114.2002 Guillaume GIRMENS: Privatization, International Asset Trade and Financial Markets
PRIV 115.2002 D. Teja FLOTHO: A Note on Consumption Correlations and European Financial Integration
PRIV 116.2002 Ibolya SCHINDELE and Enrico C. PEROTTI: Pricing Initial Public Offerings in Premature Capital Markets:
The Case of Hungary
PRIV 1.2003 Gabriella CHIESA and Giovanna NICODANO: Privatization and Financial Market Development: Theoretical
Issues
PRIV 2.2003 Ibolya SCHINDELE: Theory of Privatization in Eastern Europe: Literature Review

(l) This paper was presented at the Workshop “Growth, Environmental Policies and
Sustainability” organised by the Fondazione Eni Enrico Mattei, Venice, June 1, 2001
(li) This paper was presented at the Fourth Toulouse Conference on Environment and Resource
Economics on “Property Rights, Institutions and Management of Environmental and Natural
Resources”, organised by Fondazione Eni Enrico Mattei, IDEI and INRA and sponsored by MATE,
Toulouse, May 3-4, 2001
(lii) This paper was presented at the International Conference on “Economic Valuation of
Environmental Goods”, organised by Fondazione Eni Enrico Mattei in cooperation with CORILA,
Venice, May 11, 2001
(liii) This paper was circulated at the International Conference on “Climate Policy – Do We Need a
New Approach?”, jointly organised by Fondazione Eni Enrico Mattei, Stanford University and
Venice International University, Isola di San Servolo, Venice, September 6-8, 2001
(liv) This paper was presented at the Seventh Meeting of the Coalition Theory Network organised by
the Fondazione Eni Enrico Mattei and the CORE, Université Catholique de Louvain, Venice, Italy,
January 11-12, 2002
(lv) This paper was presented at the First Workshop of the Concerted Action on Tradable Emission
Permits (CATEP) organised by the Fondazione Eni Enrico Mattei, Venice, Italy, December 3-4, 2001
(lvi) This paper was presented at the ESF EURESCO Conference on Environmental Policy in a
Global Economy “The International Dimension of Environmental Policy”, organised with the
collaboration of the Fondazione Eni Enrico Mattei , Acquafredda di Maratea, October 6-11, 2001
(lvii) This paper was presented at the First Workshop of “CFEWE – Carbon Flows between Eastern
and Western Europe”, organised by the Fondazione Eni Enrico Mattei and Zentrum fur Europaische
Integrationsforschung (ZEI), Milan, July 5-6, 2001
(lviii) This paper was presented at the Workshop on “Game Practice and the Environment”, jointly
organised by Università del Piemonte Orientale and Fondazione Eni Enrico Mattei, Alessandria,
April 12-13, 2002
 2002 SERIES
CLIM Climate Change Modelling and Policy (Editor: Marzio Galeotti )

VOL Voluntary and International Agreements (Editor: Carlo Carraro)

SUST Sustainability Indicators and Environmental Valuation

(Editor: Carlo Carraro)

NRM Natural Resources Management (Editor: Carlo Giupponi)

KNOW Knowledge, Technology, Human Capital (Editor: Dino Pinelli)

MGMT Corporate Sustainable Management (Editor: Andrea Marsanich)

PRIV Privatisation, Regulation, Antitrust (Editor: Bernardo Bortolotti)

ETA Economic Theory and Applications (Editor: Carlo Carraro)

2003 SERIES
CLIM Climate Change Modelling and Policy (Editor: Marzio Galeotti )

GG Global Governance (Editor: Carlo Carraro)

SIEV Sustainability Indicators and Environmental Valuation

(Editor: Anna Alberini)

NRM Natural Resources Management (Editor: Carlo Giupponi)

KNOW Knowledge, Technology, Human Capital (Editor: Gianmarco Ottaviano)

IEM International Energy Markets (Editor: Anil Markandya)

CSRM Corporate Social Responsibility and Management (Editor: Sabina Ratti)

PRIV Privatisation, Regulation, Antitrust (Editor: Bernardo Bortolotti)

ETA Economic Theory and Applications (Editor: Carlo Carraro)