The political economy of mass privatization and the risk of expropriation
The privatization process in Eastern Europe is not irreversible. Future governments may want to expropriate successful private firms by increasing taxation or by renationalizing them in order to subsidize unsuccessful firms. The paper uses a simple median voter model to predict the policy of future governments. It is shown that there will be less expropriation the more shares are distributed free to the population. It is better to distribute shares equally across the population rather than to give them to insiders of each firm. Furthermore, people should be discouraged from selling their shares for cash. The threat of expropriation adversely affects investment and restructuring efforts. It is shown that a mass privatization scheme which includes substantial free distribution of shares may induce more investment, higher expected profits and higher privatization revenues for the government than a policy that relies exclusively on selling shares to the highest bidder.
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- Schmidt, K.M. & Schnitzer, M., 1992.
"Privatization and Management Incentives in the Transition Period in Eastern Europe,"
92-17, Massachusetts Institute of Technology (MIT), Department of Economics.
- Schmidt Klaus M. & Schnitzer Monika, 1993. "Privatization and Management Incentives in the Transition Period in Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 17(2), pages 264-287, June.
- 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.
- Schmidt, Klaus M. & Schnitzer, Monika, 1993. "Privatization and Management Incentives in the Transition Period in Eastern Europe," Munich Reprints in Economics 3400, University of Munich, Department of Economics.
- Schmidt, Klaus M. & Schnitzer, Monika, 1993. "Privatization and Management Incentives in the Transition Period in Eastern Europe," Munich Reprints in Economics 3109, University of Munich, Department of Economics.
- Roland, Gérard & Verdier, Thierry, 1992.
"Privatization in Eastern Europe: Irreversibility and Critical Mass Effects,"
CEPR Discussion Papers
612, C.E.P.R. Discussion Papers.
- 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.
- Roland, G. & Verdier, T., 1991. "Privatisation in Eastern Europe: Irreversibility and Critical Mass Effects," Papers 9105, Universite Libre de Bruxelles - C.E.M.E..
- Roland, G. & Verdier, T., 1991. "Privatization in Eastern Europe: Irreversibility and Critical Mass Effects," DELTA Working Papers 91-21, DELTA (Ecole normale supérieure).
- 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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