ABSTRACT
The first implication of adopting a Coasian approach to privatization in post-Soviet economies (PSEs), namely in Russia, is that ‘we have to take into account the costs involved in operating the various social arrangements (whether it be the working of a market or a government department), as well as the costs involved in moving to a new system’ (Coase, 1960). The Coasian theoretical framework is apparently apt for analysing privatization as a step toward transforming post-Soviet economies into a new economic system based on different social arrangements. What is at stake here, of course, is the existence of transaction costs. However, in addition to transaction costs, major corporate governance issues are incurred in privatising firms in most transition economies (TEs), since privatization generates ‘governance costs’ as well.1 The latter depend on the boundaries of the privatized firm that delineate the span of the control subject to governance and, in a last resort, lead us back to Coase (1937). After Coase, the theory of property rights has tackled the issue of corporate governance in elaborating on the principal-agent model. This model implicitly or explicitly stood in the background of most privatization programmes in TEs and was the benchmark for assessing their outcome.
