Privatization, Risk-Taking, and the Communist Firm
AbstractThis paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets. The methods include cash sales, a give-away scheme, and a participation contract where the government retains a sleeping fractional ownership in the firm. It is shown that, with competitive bidding, the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government. Under weak conditions, the participation contract will induce more investment than the giveaway scheme, and it may even share the cash sales' virtue of incentive compatibility.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4205.
Date of creation: Mar 1995
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Other versions of this item:
- Demougin, Dominique & Sinn, Hans-Werner, 1994. "Privatization, risk-taking, and the communist firm," Journal of Public Economics, Elsevier, vol. 55(2), pages 203-231, October.
- Demougin, Dominique & Sinn, Hans-Werner, 1993. "Privatization, Risk-Taking, and the Communist Firm," CEPR Discussion Papers 743, C.E.P.R. Discussion Papers.
- Dominique Demougin & Hans-Werner Sinn, 1992. "Privatization, Risk-Taking and the Communist Firm," Cahiers de recherche du DÃ©partement des sciences Ã©conomiques, UQAM 9216, Université du Québec à Montréal, Département des sciences économiques.
- P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
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