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Privatization and Efficiency: from Principals and Agents to Political Economy

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  • Alberto Cavaliere

    (Università di Pavia)

Abstract

We survey the theoretical literature on privatization and efficiency by tracing its evolution from the applications of agency theory to recent contributions in the field of political economy. The first ones extend the theory of regulation with incomplete information to address privatization issues, comparing State Owned Entreprises (SOEs) with private regulated firms. The benefits of privatization may either derive from the constraints it places on malevolent agents or to the impossibility of commitment by a benevolent government because of incomplete contracts. Contributions dealing with political economy issues separate privatization from restructuring decisions. They either explore bargaining between managers and politicians or analyze the impact of privatization shaped by political preferences on efficiency. The theoretical results regarding the relation between privatization and efficiency do not lead to any definitive conclusion. Privatization may increase productive efficiency when restructuring takes place whereas its effects on allocative efficiency still remain uncertain.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.99.

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Date of creation: Jun 2006
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Handle: RePEc:fem:femwpa:2006.99

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Keywords: Regulation; Imperfect Information; Political Preferences;

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References

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  1. Bernardo Bortolotti & Marcella Fantini & Domenico Siniscalco, 2001. "Privatisation Around the World: New Evidence from Panel Data," CESifo Working Paper Series 600, CESifo Group Munich.
  2. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  3. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
  4. Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
  5. Shapiro, C. & Willing, D.R., 1990. "Economic Rationales For The Scope Of Privatization," Papers 41, Princeton, Woodrow Wilson School - Discussion Paper.
  6. James A. Robinson & Ragnar Torvik, 2005. "A Political Economy Theory of the Soft Budget Constraint," Working Paper Series 5605, Department of Economics, Norwegian University of Science and Technology.
  7. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
  8. Pint, Ellen M., 1991. "Nationalization vs. regulation of monopolies : The effects of ownership on efficiency," Journal of Public Economics, Elsevier, vol. 44(2), pages 131-164, March.
  9. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, December.
  10. Laffont, Jean-Jacques, 1996. "Industrial policy and politics," International Journal of Industrial Organization, Elsevier, vol. 14(1), pages 1-27.
  11. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 995-1025, November.
  12. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
  13. Bernardo Bortolotti & Paolo Pinotti, 2003. "The Political Economy of Privatization," Working Papers 2003.45, Fondazione Eni Enrico Mattei.
  14. Jean Tirole & Jean-Jaques Laffont, 1985. "Using Cost Observation to Regulate Firms," Working papers 368, Massachusetts Institute of Technology (MIT), Department of Economics.
  15. Shirley, Mary & Walsh, Patrick, 2000. "Public versus private ownership : the current state of the debate," Policy Research Working Paper Series 2420, The World Bank.
  16. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
  17. Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics 19773, University of Munich, Department of Economics.
  18. Klaus M. Schmidt, 1990. "The Costs and Benefits of Privatization," Discussion Paper Serie A 287, University of Bonn, Germany.
  19. Ilya R. Segal, 1998. "Monopoly and Soft Budget Constraint," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 596-609, Autumn.
  20. Bortolotti, Bernardo & Siniscalco, Domenico, 2004. "The Challenges of Privatization: An International Analysis," OUP Catalogue, Oxford University Press, number 9780199249343, Octomber.
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Citations

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Cited by:
  1. Monteiro, Natália Pimenta & Portela, Miguel & Straume, Odd Rune, 2010. "Firm Ownership and Rent Sharing," IZA Discussion Papers 4909, Institute for the Study of Labor (IZA).
  2. Bárcena-Ruiz, Juan Carlos, 2012. "Privatization when the public firm is as efficient as private firms," Economic Modelling, Elsevier, vol. 29(4), pages 1019-1023.
  3. Heshmati, Almas, 2012. "Survey of Models on Demand, Customer Base-Line and Demand Response and Their Relationships in the Power Market," IZA Discussion Papers 6637, Institute for the Study of Labor (IZA).
  4. Polterovich, V., 2013. "On Control of the Ownership Structure," Journal of the New Economic Association, New Economic Association, vol. 20(4), pages 177-182.
  5. Polterovich, Victor, 2012. "Приватизация и рациональная структура собственности (Privatizatsiya i ratsional’naya struktura sobstvennosti)
    [Privatization and the Rational Owners
    ," MPRA Paper 41069, University Library of Munich, Germany.
  6. Mühlenkamp, Holger, 2013. "From state to market revisited: more empirical evidence on the efficiency of public (and privately-owned) enterprises," MPRA Paper 47570, University Library of Munich, Germany.
  7. 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.
  8. Sourav Bhattacharya & Tapas Kundu, 2011. "Resistance, Redistribution and Investor Friendliness," Working Papers 454, University of Pittsburgh, Department of Economics, revised Jan 2012.

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