Discussion paper

DP2895 Mass Privatisation and Partial State Ownership of Firms in Transition Economics

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.

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Citation

Bennett, J and S Estrin (2001), ‘DP2895 Mass Privatisation and Partial State Ownership of Firms in Transition Economics‘, CEPR Discussion Paper No. 2895. CEPR Press, Paris & London. https://cepr.org/publications/dp2895