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The political economy of mass privatization and the risk of expropriation

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  • Schmidt, Klaus M.

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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Suggested Citation

  • Schmidt, Klaus M., 2000. "The political economy of mass privatization and the risk of expropriation," European Economic Review, Elsevier, vol. 44(2), pages 393-421, February.
  • Handle: RePEc:eee:eecrev:v:44:y:2000:i:2:p:393-421
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    References listed on IDEAS

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    1. Schmidt Klaus M. & Schnitzer Monika, 1993. "Privatization and Management Incentives in the Transition Period in Eastern Europe," Journal of Comparative Economics, Elsevier, pages 264-287.
    2. 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.
    3. Roland, Gerard & Verdier, Thierry, 1994. "Privatization in Eastern Europe : Irreversibility and critical mass effects," Journal of Public Economics, Elsevier, vol. 54(2), pages 161-183, June.
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    Cited by:

    1. Francesc Trillas, 2004. "The structure of corporate ownership in privatized utilities," Investigaciones Economicas, Fundación SEPI, vol. 28(2), pages 257-284, May.
    2. Tian, Lihui, 2011. "Regulatory underpricing: Determinants of Chinese extreme IPO returns," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 78-90, January.
    3. Cheikbossian, Guillaume, 2003. "Property rights, rent-seeking and aggregate outcomes in transition economies," Economic Systems, Elsevier, vol. 27(3), pages 271-288, September.
    4. Kira Boerner, 2004. "The Political Economy of Privatization: Why Do Governments Want Reforms?," Working Papers 2004.106, Fondazione Eni Enrico Mattei.
    5. 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).
    6. Rudiger Ahrend & Carlos Winograd, 2006. "The political economy of mass privatisation and imperfect taxation: Winners and loosers," Public Choice, Springer, vol. 126(1), pages 201-224, January.
    7. Börner, Kira Astrid, 2005. "Political Institutions and Incentives for Economic Reforms," Munich Dissertations in Economics 3165, University of Munich, Department of Economics.
    8. Chernykh, Lucy, 2011. "Profit or politics? Understanding renationalizations in Russia," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1237-1253.
    9. Ljungqvist, Alexander P. & Persson, Lars & Tåg, Joacim, 2016. "Private Equity’s Unintended Dark Side: On the Economic Consequences of Excessive Delistings," CEPR Discussion Papers 11075, C.E.P.R. Discussion Papers.
    10. Maw, James, 2002. "Partial privatization in transition economies," Economic Systems, Elsevier, vol. 26(3), pages 271-282, September.
    11. Börner, Kira, 2004. "The Political Economy of Privatization," Discussion Papers in Economics 296, University of Munich, Department of Economics.
    12. Spanjer, Aldo, 2006. "European gas regulation: a change of focus," MPRA Paper 21146, University Library of Munich, Germany.
    13. Guthrie, Graeme, 2006. "Regulating Infrastructure: The Impact on Risk and Investment," Working Paper Series 3851, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    14. Spanjer, Aldo R., 2009. "Regulatory intervention on the dynamic European gas market--neoclassical economics or transaction cost economics?," Energy Policy, Elsevier, vol. 37(8), pages 3250-3258, August.
    15. 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.
    16. 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.
    17. 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.
    18. 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.
    19. 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.
    20. Perotti, Enrico C. & van Oijen, Pieter, 2001. "Privatization, political risk and stock market development in emerging economies," Journal of International Money and Finance, Elsevier, vol. 20(1), pages 43-69, February.
    21. Jaime Andrés Collazos & Héctor Ochoa, 2005. "The Effects of a Monopolistic Market Structure on the Assessment of Privatized Companies: The Colombia Case," ENSAYOS SOBRE ECONOMÍA REGIONAL (ESER) 013869, BANCO DE LA REPÚBLICA - ECONOMÍA REGIONAL.
    22. Henry Ohlsson, 2003. "Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection," Fiscal Studies, Institute for Fiscal Studies, pages 451-476.
    23. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier.
    24. 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.
    25. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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