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Methods of Privatization: Auctions, Bargaining and Give-Aways

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  • Schmidt, Klaus M.
  • Schnitzer, Monika

Abstract

The paper surveys recent results of auction theory, bargaining theory and political economy in order to compare different methods of privatization. We assume that a government is not only interested in maximizing revenues from privatization, but also in achieving an efficient allocation of ownership rights. We show that these two goals may conflict with each other. We argue that in a wide variety of circumstances the government should use an ascending open bid format, however, such as the traditional English auction. In particular, if there are more than two serious bidders, an English auction is more efficient and yields higher revenues than bargaining with a preselected buyer. Finally, if the government has to mass privatize, we show that giving away some fraction of all shares to the general population may be more efficient and yield higher revenues than a policy of selling all firms to the highest bidder.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1541.

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Date of creation: Jan 1997
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Handle: RePEc:cpr:ceprdp:1541

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Keywords: Eastern Europe; Expropriation; Mass Privatization; Political Economy;

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Cited by:
  1. Norbäck, Pehr-Johan & Persson, Lars, 2001. "Privatization and Foreign Competition," CEPR Discussion Papers 2735, C.E.P.R. Discussion Papers.
  2. Norbäck, Pehr-Johan & Persson, Lars, 2005. "Privatization and Restructuring in Concentrated Markets," CEPR Discussion Papers 4871, C.E.P.R. Discussion Papers.
  3. Arijit Mukherjee & Kullapat Suetrong, 2013. "Privatization, Incentive Delegation and Foreign Direct Investment," Open Economies Review, Springer, vol. 24(4), pages 657-676, September.
  4. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Endogenous Asset Ownership Structures in Deregulated Markets," Working Paper Series 604, Research Institute of Industrial Economics.
  5. Mukherjee, Arijit & Sinha, Uday Bhanu, 2014. "Can cost asymmetry be a rationale for privatisation?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 497-503.
  6. Siegmund, Uwe, 1997. "Wie privatisieren und wer privatisiert? Zur Erklärung der Wahl der Privatisierungsmethode und -organisation," Kiel Working Papers 812, Kiel Institute for the World Economy.
  7. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Privatization Policy in an International Oligopoly," Working Paper Series 608, Research Institute of Industrial Economics.
  8. Karl-Markus Modén & Pehr-Johan Norbäck & Lars Persson, 2008. "Efficiency and Ownership Structure: The Case of Poland," The World Economy, Wiley Blackwell, vol. 31(3), pages 437-460, 03.
  9. Gupta, Asha, 1998. "Privatization in East Germany: Can the Treuhandanstalt provide a model?," Kiel Working Papers 849, Kiel Institute for the World Economy.
  10. Hai Wang & Weidong Zhang & Jingjing Wang, 2007. "Auctioning the state owned enterprise in China: the trade-off between maximizing revenue and minimizing unemployment," Economic Change and Restructuring, Springer, vol. 40(3), pages 267-280, September.
  11. Monika Schnitzer, 2003. "Privatisierung in Osteuropa: Strategien und Ergebnisse," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 4(3), pages 359-378, 08.
  12. Schmitz, Patrick W., 2000. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," MPRA Paper 13447, University Library of Munich, Germany.

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