Mass privatization, management control and efficiency
AbstractWe present a model where a government chooses the number of individuals to which ownership in a former state-owned firm shall be allocated. When making this decision the government maximizes the political support it gets from the firm's incumbent manager and from potential shareholders, anticipating that a greater dispersion of shares reduces the control of the manager by the firm's new owners. It turns out that shares will be allocated to the maximum number of individuals - and thus a policy of mass privatization will be implemented - if the manager's utility enters the political support function with a higher weight than the welfare of the potential shareholders. The result of the political process, however, need not conflict with the objective of achieving a Pareto-optimal allocation. Thus we contradict a widely shared presumption that mass privatization schemes sacrifice efficiency to satisfy political constraints and show that they can be very attractive from an efficiency point of view.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 64 (1997)
Issue (Month): 3 (June)
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Web page: http://www.elsevier.com/locate/inca/505578
Other versions of this item:
- Dieter B”s & Phillipp Harms, 1995. "Mass Privatization, Management Control and Efficiency," Discussion Paper Serie A 475, University of Bonn, Germany.
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
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