The Costs and Benefits of Privatization: An Incomplete Contracts Approach
AbstractThis article develops a model of privatization using an incomplete contracts approach. We argue that different allocations of ownership rights lead to different allocations of inside information about the firm, which in turn affect both allocative and productive efficiency. Privatization is seen as a commitment device of the government to credibly threaten to cut back subsidies if costs are high in order to give managers better cost-saving incentives (a "harder budget constraint"). The cost of privatization is that allocative efficiency is distorted. Copyright 1996 by Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Journal of Law, Economics and Organization.
Volume (Year): 12 (1996)
Issue (Month): 1 (April)
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