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The Political Economy of Privatization


  • Börner, Kira


International organizations promote privatization as precondition for economic development. But is there really too little privatization? This political economy model asks for the incentives of governments to privatize or restructure a state-owned firm. Different government types are compared to identify the political and institutional determinants of privatization. Under privatization, governments commit not to influence the profit-maximizing employment choice by private investors. With respect to the social optimum, both voter-oriented and egoistic governments can have inefficiently high incentives to privatize. When this is the case, outside pressure to privatize is detrimental. An improving institutional environment reduces these inefficiencies.

Suggested Citation

  • Börner, Kira, 2004. "The Political Economy of Privatization," Discussion Papers in Economics 296, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:296

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    References listed on IDEAS

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    More about this item


    political incentives ; privatization ; restructuring ; employment;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H82 - Public Economics - - Miscellaneous Issues - - - Governmental Property
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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