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
JEL(s): L33, P21
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.