Bureaucracies in the Russian Voucher Privatisation

The paper analyzes the implementation of privatization in Russia in the framework of incentive theory. The central government needs the support of local privatization agencies. They possess private knowledge concerning: a) their personal reform attitude; b) local privatization conditions. According to the tradeoff between rent extraction and efficiency, the speed of privatization (the efficiency goal) is constrained by the informational rents that the government must pay to local agents. Through voucher privatization, the government learns about local privatization conditions. Surprisingly, this additional information does not necessarily lead to more privatization. In fact, the government may even slow down reforms in order to save on bureaucrats' rents. This result of the model matches with the facts of Russian privatization in 1992/93