The transition to free markets: Where to begin privatization

This essay models the sequencing of privatization within an industry and across industries. When a primary advantage of private over public ownership is more responsiveness to information about consumer demand and input costs, then privatization should begin where uncertainty or ignorance is greatest and in areas that transmit information to other agents. Privatizing middlemen has particular value when neighboring sectors are also private. If the retail sector is private, then privatization downstream usually dominates privatization upstream. Industries facing elastic demand should be privatized first when there is uncertainty about costs. J. Comp. Econom., February 1996, 22(1), pp. 23-42. Harvard University, Hoover Institution, and NBER, Cambridge, Massachusetts 02138; and University of Chicago, Chicago, Illinois 60637. (C) 1996 Academic Press, Inc.