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Managerial Career Concerns, Privatization and Restructuring in Transition Economies

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  • Roland, Gérard
  • Sekkat, Khalid

Abstract

We set up a dynamic adverse selection model to explain how career concerns may induce managers in state-owned enterprises (SOEs) to restructure their firms. It is shown how government monopsony power over managers led to the ratchet effect under the socialist economy, even under reforms coming short of privatization. The introduction of a managerial labour market, through privatization, introduces competition for managers and eliminates the ratchet effect, thereby inducing managers to restructure. Prospects of privatization also provide incentives to restructure even when managerial skills are asset-specific, provided insider control is strong enough to give managers enough rents from privatization. The model is consistent with the empirical evidence on restructuring of SOEs in transition economies.

Suggested Citation

  • Roland, Gérard & Sekkat, Khalid, 1996. "Managerial Career Concerns, Privatization and Restructuring in Transition Economies," CEPR Discussion Papers 1363, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1363
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    References listed on IDEAS

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    1. Barry W. Ickes & Larry Samuelson, 1987. "Job Transfers and Incentives in Complex Organizations: Thwarting the Ratchet Effect," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 275-286, Summer.
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    4. John M. Litwack, 1991. "Legality and Market Reform in Soviet-Type Economies," Journal of Economic Perspectives, American Economic Association, vol. 5(4), pages 77-89, Fall.
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    9. Wendy Carlin & John Van Reenen & Toby Wolfe, 1995. "Enterprise restructuring in early transition: the case study evidence from Central and Eastern Europe1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 427-458, December.
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    More about this item

    Keywords

    Managerial Career Concerns; Privatization and Restructuring; Transition Economies;
    All these keywords.

    JEL classification:

    • D29 - Microeconomics - - Production and Organizations - - - Other
    • H39 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Other
    • P29 - Economic Systems - - Socialist Systems and Transition Economies - - - Other

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