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Privatization And Efficiency: From Principals And Agents To Political Economy

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  • Alberto Cavaliere
  • Simona Scabrosetti

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 former extend the theory of regulation with incomplete information to address privatization issues, comparing state‐owned enterprises with private regulated firms. The benefits of privatization may derive either from the constraints it places on malevolent agents or from 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 analyse 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.

Suggested Citation

  • Alberto Cavaliere & Simona Scabrosetti, 2008. "Privatization And Efficiency: From Principals And Agents To Political Economy," Journal of Economic Surveys, Wiley Blackwell, vol. 22(4), pages 685-710, September.
  • Handle: RePEc:bla:jecsur:v:22:y:2008:i:4:p:685-710
    DOI: 10.1111/j.1467-6419.2007.00546.x
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    More about this item

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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