A positive theory of give-away privatization

Abstract

We make a first step towards a positive theory of privatization, in a framework similar to the one of Shleifer and Vishny's "Politicians and Firms" (QJE, 1994). In our model, a government may want to privatize because privatization can provide managers with stronger incentives to exert effort, and more managerial effort may help to maintain jobs that otherwise would be destroyed. However, the government trades off better managerial incentives with the costs of losing control, here, over funds that the government provides for the restructuring of firms. We also show that if managers care for the size of their firm, privatization may weaken, not strengthen incentives.JEL Classification: D23, L33, P31

Infrastructure and Public Utilities Privatization in Developing Countries

“…Another concern about public ownership is the governments' lack of economic orientation. For instance in Kornai and Weibull (1983), Shleifer and Vishny (1997), Debande and Friebel (2003), governments demonstrate 'paternalistic' or political behaviors as they seek to protect employment; in Shapiro and Willig (1990), governments are malevolent. The main conclusion of the above two strands of literature is that privatization improves the internal efficiency of firms.…”

Privatization, Investment and Ownership Efficiency

“…3 Debande and Friebel (2004) have another model that focuses on managers' incentives. 4 In Norbäck and Persson (2006) an similar model set-up is used to study the difference between incumbent-financed and venture capital financed development.…”

“…6 To simplify comparisons of investment incentives, in addition, we want to ensure that R A and R G are symmetric such that for a given level of k,…”

Insider Privatization and Careers - A Clinical Study of a Russian Firm in Transition

“…The main difference between Soviet and western firms is not so much the use of promotions, but rather the fact that in Soviet firms, promotions provided access to additional fringe benefit, rather than substantial wage increases (see Kornai, 1992). 4 For a moel on defensive and strategic restructuring of insider-privatized firms see Debande and Friebel (2004).…”

“…In Russia, outsiders receive little or no protection of their property rights. 5 The incumbent managers became owners when the firm was privatized. They hired new managers from the outside labor market with skills that are more adapted to a market economy.…”