Working Paper: CEPR ID: DP1541
Authors: Klaus M. Schmidt; Monika Schnitzer
Abstract: The paper surveys recent results of auction theory, bargaining theory and political economy in order to compare different methods of privatization. We assume that a government is not only interested in maximizing revenues from privatization, but also in achieving an efficient allocation of ownership rights. We show that these two goals may conflict with each other. We argue that in a wide variety of circumstances the government should use an ascending open bid format, however, such as the traditional English auction. In particular, if there are more than two serious bidders, an English auction is more efficient and yields higher revenues than bargaining with a preselected buyer. Finally, if the government has to mass privatize, we show that giving away some fraction of all shares to the general population may be more efficient and yield higher revenues than a policy of selling all firms to the highest bidder.
Keywords: mass privatization; eastern europe; expropriation; political economy
JEL Codes: C78; D44; D72
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ascending open bid format (D44) | higher revenues (H27) |
| ascending open bid format (D44) | more efficient allocation (D61) |
| number of bidders (D44) | effectiveness of auction formats (D44) |
| mass privatization (L33) | higher revenues (H27) |
| mass privatization (L33) | more efficient allocation (D61) |
| auction format (D44) | efficiency of allocation (D61) |
| auction format (D44) | revenues generated (H27) |
| risk aversion among bidders (D44) | bidding strategies (D44) |
| bidding strategies (D44) | overall efficiency of auction process (D44) |
| bidding strategies (D44) | revenue of auction process (D44) |