NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Privatization in East Germany

Hans-Werner Sinn

NBER Working Paper No. 3998*
Issued in February 1992

This paper is a critical review of east German privatization policy. It is argued that the restitution of old property rights has been a major obstacle to investment and that the attempt to sell two thirds of an economy in the market place is bound to be a failure. Such an attempt implies serious macro and microeconomic stock-flow problems which erode the sales prices of Treuhand assets, induce the Treuhand to slow down its sales, and reduce private investment. By combining a participation model with a wage freeze the paper designs a social contract that may help increase the chances of economic recovery in east Germany.

*Published: Public Finance, 47, (s), 1992, pp. 152-171 ("Public Finance in a World of Transition") supplement

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