2ND-BEST ECONOMIC-POLICY FOR A DIVIDED GOVERNMENT

Economic policy advice is often dispensed based on a model of a unifie d, benevolent government. For some transition economies, this model is inappropriate and can lead to bad advice. The more appropriate model - that of a badly divided government - often leads to very different p olicy recommendations. We illustrate this point using the example of p re-privatization restructuring of state firms, and discuss its implica tions for foreign economic assistance.