Optimal withdrawing path of state-owned capital in economic transition A dynamic model

This paper presents a dynamic model based on the utility maximum decisions of both the government and private sectors to study the optimal withdrawing path of state-owned capital in economic transition. Numerical simulation shows that: (1) an optimal transition path still exists when treating government and private sectors separately, (2) when the transition cost is higher than its critical value, the economy will never start a transition by itself. In addition, this analysis offers theoretical supports for some reform policies adopted by governments during transition.