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Private firms are of growing importance in virtually all transition economies but operate in market and institutional conditions that are still far from competitive and transparent. Although firms have at their disposal various alternative strategies for dealing with their problems, in this paper we focus on two: making unofficial payments to officials and joining business associations. Choices between these strategies may be affected by both firm and industry characteristics and institutional conditions. This paper has two objectives: (1) to compare the effects of two alternative strategies (unofficial payments and association memberships) on various alternative measures of firm performance; and (2) in the case of association membership, to determine which particular functions—lobbying, information, or other—have the greatest effects on several different measures of firm performance. To accomplish these objectives, we make use of the 2002 and 2005 waves of the Business Environment and Enterprise Performance Surveys in twentyeight transition economies. Estimates are obtained from both separate cross sections for 2002 and 2005 and a smaller panel of firms for which the information is available for both years. The estimates show that memberships in business associations, and especially access to their information functions, contribute more to firm performance than unofficial payments and lobbying, despite the fact that much of the literature asserts the opposite and assumes lobbying to be the primary function of business associations, especially in transition economies.

Small firms, especially those in developing countries, face several serious problems: (1) costs of regulation, including corruption, (2) contract enforcement, and (3) idiosyncratic risks that leave their owners with high costs of finance. To deal with these problems, it is recognized that firms exercise choice over their degree of formality. Little attention, however, has been given to the alternative strategies that firms may choose in gaining formality and dealing with these problems. This article examines the choice between two different strategies: (1) registering with official entities, and (2) participating in private associations. We develop hypotheses concerning factors that would favor one such choice over the other and then test these hypotheses with data taken from a large sample survey of Mexican microenterprises. The results provide support, in some cases strong support, for most of the hypotheses.

Private firms are of growing importance in virtually all transition economies but operate in market and institutional conditions that are still far from competitive and transparent. Although firms have at their disposal various alternative strategies for dealing with their problems, in this paper we focus on two: making unofficial payments to officials and joining business associations. Choices between these strategies may be affected by both firm and industry characteristics and institutional conditions. This paper has two objectives: (1) to compare the effects of two alternative strategies (unofficial payments and association memberships) on various alternative measures of firm performance; and (2) in the case of association membership, to determine which particular functions-lobbying, information, or other-have the greatest effects on several different measures of firm performance. To accomplish these objectives, we make use of the 2002 and 2005 waves of the Business Environment and Enterprise Performance Surveys in twentyeight transition economies. Estimates are obtained from both separate cross sections for 2002 and 2005 and a smaller panel of firms for which the information is available for both years. The estimates show that memberships in business associations, and especially access to their information functions, contribute more to firm performance than unofficial payments and lobbying, despite the fact that much of the literature asserts the opposite and assumes lobbying to be the primary function of business associations, especially in transition economies.

Small firms face three serious problems, namely, the high costs of regulation, of contract enforcement, and of finance. A simple model is developed to explain why in dealing with these problems small firms choose different strategies. Special emphasis is given to the effects of regulation costs and judicial efficiency on these choices. Several propositions concerning these effects are derived from the model and tested with data on Mexican microenterprises. The results support most hypotheses, and show that firms obtain more credit when they either register with official entities or participate in private associations and especially when they do both.

This dissertation consists of three interrelated essays and focuses on the effects of wealth and human capital distributions on choices of investment and employment, income inequality, and economic growth. The first essay is devoted to the theme of inequality and economic growth for the economies in transition from Central and Eastern Europe and the Commonwealth of Independent States (CIS). Despite their initial similarities, subsequently they have experienced significantly different growth rates and changes in income inequality. The empirical analysis reveals that the effect of inequality on growth is negative and strong. This result is robust to the use of the different specifications and estimation methods that in different previous studies had led, even when sharing the same data, to very different results. The second essay discusses the distributional effects of human capital and wealth on small business startups, credit rationing, child quality-quantity tradeoff, and income inequality. The following results based on an OLG model are received: Given the initial distribution in wealth and human capital, the smaller is the gap between wages and entrepreneurs' returns, the more the child quality-quantity tradeoff is biased towards the former. Lower wages increase the number of both potential and credit rationed entrepreneurs. Higher wages increase the human capital threshold to be eligible for credit. The higher is the correlation between wealth and human capital, the fewer are the potential entrepreneurs who are credit rationed. The third essay examines wage inequality dynamics in East Germany from its reunification with West Germany until 2001. While under the centrally planned system even vocational education was sufficient to secure employment, after reunification East German workers had to either receive re-training and apply for jobs in western industries offering higher wages, or remain in eastern, less competitive industries offering lower salaries and little prospect for future growth. The results show that individual characteristics played a significant role in labor adjustment process. While wages were set by industries, the inequality dynamics was largely influenced by the workers' education, employment experience, and related background.