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Nationalizations, bailouts and efficiency

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  • Ernesto Crivelli
  • Klaas Staal

Abstract

We develop a theoretical model in which there are public and private firms and a government. When firms become insolvent, the government can intervene with bailouts or nationalizations. The government only intervenes when the bankruptcy of a firm entails social costs. In this setting, we analyze how government interventions affect allocative and productive efficiency. Nationalizations of private firms after unprofitable investments lead to increased allocative efficiency despite private ownership. The effort level chosen by the managers and employees working for a firm is also affected by the possibility of government interventions, reducing the productive efficiency advantage of private firms.

Suggested Citation

  • Ernesto Crivelli & Klaas Staal, 2020. "Nationalizations, bailouts and efficiency," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 23(2), pages 209-228, July.
    • Handle: RePEc:taf:jpolrf:v:23:y:2020:i:2:p:209-228
    DOI: 10.1080/17487870.2019.1566065
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