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Abstract
In this paper a view is advanced that explains why the transition to markets did not
always lead to the outcomes predicted by the Washington Consensus type strategies.
Institutional portfolio theory is used to define a myriad of interests and goals of a
transition economy. A model is developed in which external intervention and increased
external monitoring are shown to lead to lessening of the intrinsic motivation within
transition economies to pursue the reforms as prescribed by Washington Consensus
sometimes resulting in very slow growth rates or even a decline of the GDP.