DP2895 Mass Privatisation and Partial State Ownership of Firms in Transition Economics
|Author(s):||John Bennett, Saul Estrin, James Maw|
|Publication Date:||September 2001|
|Keyword(s):||privatisation, state ownership, transition economies|
|Programme Areas:||Transition Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=2895|
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.