Negative selection and moral hazard as causes to inefcient transition and tendency towards crisis in Bosnia and Herzegovina

  • Рајко Томаш Faculty of Economics, University of Banja Luka
Keywords: transition, negative selection, moral hazard, asymmetric information, economic reforms


Bosnia and Herzegovina (BiH) is facing the consequences of inefficient transition (1), strategic concentration of economic development in large countries to detriment of the small ones (2), and economic crisis (3). This paper analyses the causes and the consequences of inefficient transition in BiH, and the opportunities for implementing reforms to eliminate the afore said, as well as for reinforcing the preconditions for getting out of the economic crisis. Elementary reasons to inefficient transition include negative selection of investors throughout privatisation process, and the moral hazard in the operations of privatised companies. Public capital became the property of those who have the money, and not those who would most efficiently use it. Instead of a privatisation, which provides for unity of private entrepreneurship and risk, we have witnessed the tycoons taking over significant part of the economy, accumulating private wealth with the help of the state and to its detriment, leaving aside the market competitiveness. The burden of crisis in BiH has targeted the two most delicate tiers: uncompetitive economy and poor population. The strategy for getting out of the crisis seems paradoxical: it is expected that the economy, burdened by negative selection and moral hazard, would become more competitive, and the employees more productive with, realistically speaking, lower wages. To mitigate the consequences of the economic crisis, BiH must, firstly, face the inefficient transition and implement reforms to eliminate irregularities of the transition process. Economic and legal systems should enable for the non-profitable forms of keeping and use of resources to go to ruin and be replaced by more efficient ones. Efficient use of resources is the best tool to protect the very resources; it increases the price thereof as well as the total public wealth. The same applies to labour. High labour productivity best protects the workers’ rights. The state should not be protecting the proprietors of resources against the market forces, but rather the resources against nonmarket use.


Download data is not yet available.


Andreas, P. Symbiosis Between Peace Operations and Illicit Business in Bosnia. International Peacekeeping,16:1,33-46. 2009.

Buehn, A., Schneider, F.Corruption and the Shadow Economy: A Structural Equation Model Approach. Tübingen: Institut für Angewandte Wirtschafsforschung, Discussion Paper No. 4182, 2009.

Carothers, T. The End of the Transition Paradigm. Journal of Democracy, Volume 13, Number 1 January 2002, 6-21.

Donais, T. The Politics of Privatization in Post-Dayton Bosnia, in: Southeast European Politics, Vol. III, No. 1, June, 1-19, 2002.

Donais, T., Pickel, A. The International Engineering of a Multiethnic State in Bosnia: Bound to Fail, Yet Likely to Persist. Prepared for presentation at the CPSA Annual Conference, Halifax, N.S. June 1, 2003.

Eastmond, M. Transnational Returns and Reconstruction in Post-war Bosnia and Herzegovina. International Migration Vol. 44 (3) 2006, 141-166.

Ehrke, M. Von der Raubökonomie zur Rentenökonomie. Mafa, Bürokratie und internationales Mandat in Bosnien, in: Internationale Politik und Gesellschaf, 2/2003, 123-154, 2003.

Fischer, M. Bosnia’s Challenge: Economic Reform, Political Transformation and War-to-Peace Transitionin: in Martina Fischer (ed.) 2006. Peacebuilding and Civil Society in Bosnia-Herzegovina. Ten Years after Dayton. Münster: Lit Verlag, 441-470.

IMF Country Report No. 10/348, December 2010.

IMF - World Economic Outlook (2010), United Nations Statistics Division - National Accounts Statistics Database, October 2010.

Freedom House. Nations in Transit 2011, Washington

Hayek, F. A. Te Use of Knowledge in Society, The American Economic Review, Vol. 35, No. 4 (Sep., 1945), pp. 519-530, Article Stable URL:

Mises, L. Economic Calculation in the Socialist Commonwealth. Auburn:, Ludwig von Mises Institute, Alabama, 1990, репринт издање из 2012.

Mises, L. Socialism, An Economic and Sociological Analysis. New Haven: Yale University Press, 1951,

Paris, R. Peacebuilding and the Limits of Liberal Internationalism, International Security, 22(2): 54-89, 1997.

Partners for Financial Stability (2011), Financial Sector Benchmarking System, Bosnia and Herzegovina High Level Financial Sector Overview

Polany, K. Our Obsolete Market Mentality: Civilization must Find a New Tought Pattern, Commentary vol 3, February: 109-117, 1947.

Pugh, M. Postwar Political Economy in Bosnia and Herzegovina: the Spoils of Peace, Global Governance, vol.8, no.4, autumn 2002 : 467-482.

Pugh, M., Cooper, N., Goodhand, J. War Economies in a Regional Context, Challenges of Transformation. Lynne Rienner Publishers, Boulder, London, 2004.

Pugh, M. Liquid Transformation in the Political Economy of Bosnia. International Peacekeeping, vol.12, No.3: 448-462, 2005.

Schneckener, U. Making Power-Sharing Work: Lessons from Successes and Failures in Ethnic Conflict Regulation’, Journal of Peace Research, 39(2): 203-228, 2002.

Stojanov, D. Economics in Peacemaking: Lessons from Bosnia and Herzegovina, London: Portland Trust, 2009.

The Heritage Foundation (2011), Highlights of the 2012 Index of Economic Freedoms

The World Bank, European Commission, EBRD, (1996), Bosnia and Herzegovina on the Road to Recovery: Towards Establishing a Market Economy

The World Bank and IFC (2011), Doing Business in a more transparent world 2012.

The World Bank (2012), Bosnia and Herzegovina: Challenges and Directions for Reform A Public Expenditure and Institutional Review, Report No. 66253- BA, February 2012.

TIRI, UK (2007), Integrity in Reconstruction in BiH - Corruption, Effectiveness and Sustainability in Post-War Countries, London

Томаш, Р. Страх од предузетништва. Београд: Економика, 1993.

Tomaš, R. Efciency Constraints on the Economy of Bosnia and Herzegovina, in C. Solioz&K. Vogel (eds.) „Dayton and Beyond: Perspective on the Future of Bosnia and Herzegovina”, Nomos, Baden-Baden, 2004.

Томаш, Р. Економија заробљених ресурса. Бања Лука: НИГП Независне новине, 2008.

Tomaš, R. Crisis and Gray Economy in Bosnia and Herzegovina. Sarajevo: Friedrich Ebert Stifung, 2010.

Tomaš, R. Limited Possibilities of Adapting the Economy of Bosnia and Herzegovina to the External Pressures of the Economic Crisis, Acta Economica, Volume 10, No 17, 9-30, 2012.

Transparency International’s (2011), Corruption Perceptions Index (CPI), December 2011

Tzifakis, Nikolaos&Tsardanidis, Charalambos Economic reconstruction of Bosnia and Herzegovina: Te lost decade, Ethnopolitics: Formerly Global Review of Ethnopolitics, Volume 5, Issue 1, 67-84, 2006.

Velde, D. Te global fnancial crisis and developing countries. London: Overseas Development Institute, 2008.

World Economics Forum (2011), Te Global Competitiveness Report 2011- 2012

How to Cite
Томаш, Р. (2013). Negative selection and moral hazard as causes to inefcient transition and tendency towards crisis in Bosnia and Herzegovina. Acta Economica, 11(18), 9-30.
Original Scientific Papers

Most read articles by the same author(s)

Obs.: This plugin requires at least one statistics/report plugin to be enabled. If your statistics plugins provide more than one metric then please also select a main metric on the admin's site settings page and/or on the journal manager's settings pages.