Working Paper: CEPR ID: DP2895
Authors: John Bennett; Saul Estrin; James Maw
Abstract: In their privatization programs, transition governments have frequently given away shares (so-called `mass privatization'), while maintaining significant minority ownership. We explain the rationality of these policies for an expected net-revenue maximizing government. Our argument rests on a political feasibility constraint, preventing sale at a negative price. This constraint both raises prices that would otherwise be negative to zero, and has an indirect effect: mass privatization and partial retained state ownership may be chosen even if sale of a firm's entire assets would fetch a positive price. They are more likely to be chosen if the government has low bargaining power.
Keywords: privatisation; state ownership; transition economies
JEL Codes: L33; P21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government (H11) | Choice of privatization strategy (L33) |
| Political feasibility constraint (D72) | Pricing strategies (D49) |
| Bargaining power (C79) | Choice of privatization strategy (L33) |
| Retained ownership (G32) | Privatization outcomes (L33) |
| Privatization to insiders (L33) | Restructuring outcomes (G33) |
| Privatization to outsiders (L33) | Restructuring outcomes (G33) |
| Government's bargaining power (H11) | Retaining shares (G34) |