1994 Articles

Using vouchers to privatize an economy: the Czech and Slovak case

Svejnar, Jan; Singer, Miroslav

The 1992 Czechoslovak privatization of state property has been widely heralded as one of the most impressive accomplishments in the economic transformation of the formerly communist economies. Before separating into two countries on January 1, 1993, Czechoslovakia undertook rapid large-scale privatization of state enterprises. A key element of the process was voucher privatization - the almost free distribution of vouchers to citizens who in turn used the vouchers to bid for shares in state enterprises. The design and implementation of the Czechoslovak voucher scheme has sparked a lively debate among academics and policy-makers in many countries. A small percentage of Russian enterprises has already been privatized through a different voucher scheme and other systems may be introduced in other transforming economies as well. While voucher privatization has an obvious popular appeal, many transitional economies have so far avoided it because of the perceived uncertainty about the process and its outcome. The iterative scheme used in Czechoslovakia is a relatively cumbersome procedure which has never been tried on a large scale before. The non-existence of supporting institutions and the inexperience of the participating citizens and officials also make it hard to assess its feasibility. The results of the 1992 Czechoslovak experiment are the first ones to reveal the behaviour of individual citizens, the investment privatization funds (IPFs) and the government authorities in the process of voucher privatization. As such, they are of significant academic as well as of policy interest.' In this paper we use data on the 1,491 enterprises which participated in the first wave of Czechoslovak voucher privatization to undertake an empirical analysis of (a) the demand of individual voucher holders and the IPFs for enterprise shares in the five rounds of bidding and (b) the price-setting behaviour of the authorities in these rounds. Since the data set contains all the firm-specific as well as more aggregate variables that were publicly available to the bidding individuals and IPFs, we can assess the importance of the various indicators for the bidding behaviour. Similarly, using the data that were available to the authorities, we are able to trace their complex price-setting behaviour and show that it can be very closely approximated by a relatively simple functional form.