The Effect of Privatization on Wealth Distribution in Russia

Posted: 23 Nov 1999

See all articles by Michael Alexeev

Michael Alexeev

Indiana University Bloomington - Department of Economics; Russian Presidential Academy of National Economy and Public Administration

Abstract

The paper considers the Russian privatization process and examines how its deviation from the competitive sale standard was likely to affect wealth inequality. (Privatization here is defined narrowly as the transfer of existing assets from government ownership to private hands.) While empirical evaluation is all but impossible due to the dearth of reliable data, it is feasible to analyze the institutional features of Russian privatization in terms of their effect on redistribution of wealth. The paper argues that the most relevant and interesting issue is to evaluate privatization's distributional consequences relative to the informal pre-reform property rights. In light of this, privatization is modelled as a rent-seeking contest with incumbency advantage of enterprise managers who initially held the greatest informal rights over assets. The rent-seeking contest is shown to strongly magnify this pre-reform wealth inequality reflected in the incumbency advantage.

In addition, the paper analyzes the distributional consequences for various wealth groups of the differences in the composition of their pre-reform informal wealth, most importantly a relatively large share of housing assets in the wealth of the poor. The effect of wealth redistribution on economic growth in Russia is also discussed.

JEL Classification: D7, P2, P3

Suggested Citation

Alexeev, Michael V., The Effect of Privatization on Wealth Distribution in Russia. Economics of Transition, Vol. 7, No. 2, 1999 . Available at SSRN: https://ssrn.com/abstract=169513

Michael V. Alexeev (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall 105
Bloomington, IN 47405-6620
United States

Russian Presidential Academy of National Economy and Public Administration ( email )

pr. Vernadskogo, 84
Moscow, 119571
Russia

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