Privatization Success and Failure: Finance Theory and Regulation in the Transitional Economies of Albania and the Czech Republic

This paper examines the transition of economies of Albania and the Czech Republic, noting that their relative failure and success could have been predicted by academic literature. Financial intermediation theory predicted the rise of independently created mutual funds in the Czech Republic, while similar intermediation literature related to monitoring (or the lack thereof) predicted the development of the Ponzi schemes of Albania. These privatization success and failure stories highlight the primary importance of regulation, monitoring and enforcement in economies-in-transition. Lessons learned from privatization in developed countries may therefore not be directly applicable to newly emerging economies, as economies-in-transition do not have the regulatory and legal network in place to prohibit malfeasance. © 1997 John Wiley & Sons, Ltd.