The purpose of this project is to analyze some of the difficulties encountered in the transition from a planned to market economy. The first issue to be analyzed is what happens to firm specific knowledge or organizational capital as state run firms are replaced by private ones. A growth model of industry evolution and transition is developed and used with panel data on the patterns of birth, growth, and death of manufacturing plants to estimate the scale of investment in organizational capital. Another issue to be analyzed is the initial and usually significant drop in total output that occurs in converting to a market system. This drop in output is modeled as arising from the changes in managers' and workers' incentives that arise as their rents are redistributed as a result of economic reform. Finally, the potential role that changes in energy prices might play in explaining the transition path of the former socialist economies is analyzed. A model of production is developed to assess the impact of energy price changes on energy use, total output, productivity, investment, and employment. ***
