This paper develops a two-period model of enterprise shutdown during post-Soviet transition, when firm performance is at best a highly noisy signal of its viability in the evolving market economy. The paper focuses at the industry level, taking a normative industrial-policy perspective, and...

The paper argues that a key legacy of the Soviet-type command economy is the highly inefficient, often value- destroying, structure of factor use and economic interaction. This structure was sustainable only by virtue of distorted prices and the force of command that maintained interactions...