Faculty of Economics and Business Administration Publications Database

A positive theory of "Give-away" Privatization

Debande, Oliver
Volume: 22
Number: 8-9
Pages: 1209 - 1325
Month: November
ISSN-Print: 0167-7187
Link External Source: Online Version
Year: 2004
Keywords: Privatization; Executives; Government ownership; Ecnonomic policy
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.