Archive 2004

• 17.02.2004

  Public Governance as the Source of Quality and Variety Gains from Transition

  (Code:24)

  Two economies, a centrally planned economy (CPE) and a post transition regulated mixed economy (RMME), are modeled in a static general equilibrium setting that allows for trade-offs among the quantity, quality and variety of production. Equilibrium in these economies are determined by the quality of public governance. In real world transitions from a CPE to a RMME, quality improvements and an increasing variety of production matter more than output volumes. Our model indicates that improvements in public governance, connected with a successful political transformation, facilitate such changes. This result is compatible with the view that the post-transition output path can be accounted for by observable initial conditions and liberalization policies. However, both are completely determined by the quality of governance in the pre-transition and post-transition states.

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