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The Political Economy of Mass Privatization and the Risk of Expropriation

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  • Klaus M. Schmidt

Abstract

The privatization process in Eastern Europe is not irreversible. Future governments may want to (partially) expropriate successful private firms in order to subsidize unsuccessful ones. We use a simple median voter model to predict the policy of future governments. It is shown that there will be less expropriation the more shares were distributed for free to the population. Diversified mass privatization is better than insider privatization. Furthermore, people should be discouraged to sell their shares for cash. Finally, we show that some free distribution of shares may, induce more investment and increase expected profits and privatization revenues for the government.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 136.

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Length: pages
Date of creation: 01 Mar 1998
Date of revision:
Handle: RePEc:wdi:papers:1998-136

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Keywords: mass privatization; transition; expropriation; political economy;

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References

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  1. Schmidt,Klaus & Schnitzer,Monika, 1992. "Privatization and management incentives in the transition period in Eastern Europe," Discussion Paper Serie A 374, University of Bonn, Germany.
  2. Roland, G. & Verdier, T., 1991. "Privatisation in Eastern Europe: Irreversibility and Critical Mass Effects," Papers 9105, Universite Libre de Bruxelles - C.E.M.E..
  3. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Fardmanesh, Mohsen & Tan, Li, 2003. "Wage and price control policies in transition economies," Journal of Development Economics, Elsevier, vol. 70(1), pages 173-200, February.
  2. Jiahua Che, 2003. "The Life Cycle of Government Ownership," William Davidson Institute Working Papers Series 2003-627, William Davidson Institute at the University of Michigan.
  3. Enrico C. Perotti & Pieter van Oijen, 1999. "Privatization, Political Risk and Stock Market Development in Emerging Economies," William Davidson Institute Working Papers Series 243, William Davidson Institute at the University of Michigan.
  4. Ohlsson, Henry, 1998. "Ownership and Production Costs - Choosing Between Public Production and Contracting Out," Working Paper Series 1998:6, Uppsala University, Department of Economics.
  5. Francesc Trillas, 2004. "The structure of corporate ownership in privatized utilities," Investigaciones Economicas, Fundación SEPI, vol. 28(2), pages 257-284, May.
  6. Antonio Estache & L. Wren-Lewis, 2008. "Towards a Theory of Regulation for Developing Countries: Following Laffont's Lead," Working Papers ECARES 2008_018, ULB -- Universite Libre de Bruxelles.
  7. Graeme Guthrie, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Journal of Economic Literature, American Economic Association, vol. 44(4), pages 925-972, December.
  8. Spanjer, Aldo, 2006. "European gas regulation: a change of focus," MPRA Paper 21146, University Library of Munich, Germany.
  9. Rudiger Ahrend & Carlos Winograd, 2006. "The Political Economy of Mass Privatisation and Imperfect Taxation: Winners and Losers," Documents de recherche 06-02, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  10. Tian, Lihui, 2011. "Regulatory underpricing: Determinants of Chinese extreme IPO returns," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 78-90, January.
  11. Cheikbossian, Guillaume, 2003. "Property rights, rent-seeking and aggregate outcomes in transition economies," Economic Systems, Elsevier, vol. 27(3), pages 271-288, September.
  12. Maw, James, 2002. "Partial privatization in transition economies," Economic Systems, Elsevier, vol. 26(3), pages 271-282, September.
  13. Börner, Kira Astrid, 2005. "Political Institutions and Incentives for Economic Reforms," Munich Dissertations in Economics 3165, University of Munich, Department of Economics.
  14. Anders Sundell & Victor Lapuente, 2012. "Adam Smith or Machiavelli? Political incentives for contracting out local public services," Public Choice, Springer, vol. 153(3), pages 469-485, December.
  15. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
  16. Christian Velasquez-Donaldson, 2007. "Analysis of the Hydrocarbon Sector in Bolivia: How are the Gas and Oil Revenues Distributed?," Development Research Working Paper Series 06/2007, Institute for Advanced Development Studies.
  17. Börner, Kira, 2004. "The Political Economy of Privatization," Discussion Papers in Economics 296, University of Munich, Department of Economics.
  18. Fidel Pérez Sebastián & Lilia Maliar & Serguei Maliar, 2005. "Sovereign Risk, Fdi Spillovers, And Economic Growth," Working Papers. Serie AD 2005-27, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  19. Kira Boerner, 2004. "The Political Economy of Privatization: Why Do Governments Want Reforms?," Working Papers 2004.106, Fondazione Eni Enrico Mattei.

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