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The Political Economy of Mass Privatization and the Risk of Expropriation

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  • Klaus M. Schmidt

Abstract

The privatization process in Eastern Europe is not irreversible. Future governments may want to (partially) expropriate successful private firms in order to subsidize unsuccessful ones. We use a simple median voter model to predict the policy of future governments. It is shown that there will be less expropriation the more shares were distributed for free to the population. Diversified mass privatization is better than insider privatization. Furthermore, people should be discouraged to sell their shares for cash. Finally, we show that some free distribution of shares may, induce more investment and increase expected profits and privatization revenues for the government.

Suggested Citation

  • Klaus M. Schmidt, 1998. "The Political Economy of Mass Privatization and the Risk of Expropriation," William Davidson Institute Working Papers Series 136, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:1998-136
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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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