SYSTEMIC CHANGE AND ASSET SPECIFICITY, THE CASE OF TRANSFORMATION IN CENTRAL AND EASTERN EUROPE

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Abstract:

The economic system exerts its influence over the economy through many assets that are system-specific. Economic actors invest in such assets in order to capture the opportunities defined by the system. When systemic entrepreneurs set systemic transformation in motion, uncertainty is created. Together with externalities produced by investment in systemic transformation and the ensuing alteration of the property right structure, this determines the distribution of transformation costs and gains. This produces opportunities for investing valuable resources to weaken third-party enforcement and capture gains and avoid costs via transformational redistribution. This situation increases asymmetries, reduces the opportunities for productive outcome, and makes change costly and path dependent. This framework is used to explain the process of change in Central and Eastern Europe.

Keywords: economic system; path dependence; system-specific assets; transformation

Document Type: Research Article

Publication date: December 19, 2001

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