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Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered

  • Patrick W. Schmitz

In this paper it is argued that privatization is not the only alternative to public ownership. Adopting the incomplete contract approach, it is shown that partial privatization may well be the optimal ownership structure. While in the standard incomplete contract model joint ownership is usually suboptimal, it is shown here that joint ownership in the form of partial privatization can be optimal since it mitigates the disadvantages of public ownership (no incentives to improve quality if the manager invests or too strong incentives if the government invests) and of rivatization (too strong incentives for the manager to reduce costs).

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 57 (2000)
Issue (Month): 4 (August)
Pages: 394-411

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200108)57:4_394:ppaict_2.0.tx_2-q
Contact details of provider: Web page: https://www.mohr.de/fa

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  24. Schmidt, Klaus M., 1996. "The costs and benefits of privatization: An incomplete contracts approach," Munich Reprints in Economics 19773, University of Munich, Department of Economics.
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