Maxim Boycko

A Theory of Privatisation

Public enterprises around the world have proved to be highly inefficient, primarily because they pursue strategies, such as excess employment, that satisfy the political objectives of politicians who control them. Privatization of public enterprises can raise the cost to politicians of influencing them, since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms. In this way, privatization leads to efficient restructuring of firms. Moreover, privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors, rather than their employees or even managers. Copyright 1996 by Royal Economic Society.

Hunting for Homo Sovieticus: Situational versus Attitudinal Factors in Economic Behavior

ing from the current economic situation: MI 1. Which of the following achievements would please you more? A. You win fortune without fame: you make enough money through successful business dealings so that you can live comfortably for the rest of your life. B. You win fame without fortune: for example, you win a medal at the Olympics or you become a respected journalist or scholar. Responses in percent Fortune Fame without without Sluvey fame fortune size Ukraine (pre-coup) 67 33 90 Russia (Moscow) 65 35 92 Russia (Omsk) 81 19 107 U.S.A. (New York) 54 46 117 Japan (Tokyo) 68 32 126 Rober t J. Shiller, Maxim Boycko, and Vladimir Korobov 147 Little difference across countries appears in the responses: the exception is Omsk, where money appears to be most important. Virtually no difference in answers appears to exist between Japan and Ukraine or Ja-

Second-best economic policy for a divided government

Abstract Economic policy advice is often dispensed based on a model of a unified, benevolent government. For some transition economies, this model is inappropriate and can lead to bad advice. The more appropriate model — that of a badly divided government — often leads to very different policy recommendations. We illustrate this point using the example of pre-privatization restructuring of state firms, and discuss its implications for foreign economic assistance.