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Economic and Legal Considerations of Optimal Privatization

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  • John R. Garrett
  • Hans-Joachim Beyer
  • Claudia Helene Dziobek
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    Abstract

    Successful privatization must be accompanied by the complete removal of privileges and any public policy mission. Bank behavior changes rapidly as profit maximation replaces the bureaucratic objective function. Once privileges are granted, they are difficult to remove. Therefore, privatization is a one-time (nonreversible) operation. The German mortgage bank, DePfa, went through a carefully planned and lengthy privatization process that was successful. Fannie Mae, the U.S. mortgage firm, became a privately owned institution endowed with special privileges, which led to a quasi-monopoly position. This resulted in suboptimal financial sector performance. Fannie Mae’s special privileges have proven resistant to reform efforts.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/69.

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    Length: 27
    Date of creation: 01 May 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/69

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    Cited by:
    1. Michael Andrews, 2005. "State-Owned Banks, Stability, Privatization, and Growth," IMF Working Papers 05/10, International Monetary Fund.
    2. Khan, Iram, 2006. "Public vs. private sector : an examination of neo-liberal ideology," MPRA Paper 13443, University Library of Munich, Germany.

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