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Privatisation and Market Structure in a Transition Economy

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  • John Bennett
  • James Maw

Abstract

A model is developed in which an industry of N > I firms is privatized. The 'participation' method of privatization is used, whereby firms are sold for cash, but the state retains a proportionate share of ownership. In each firm the new private owner has the opportunity to make a reorganisational investment, before output Is produced. The investment is unobservable by the state, and therefore noncontractible. Thae Is Cournot competition In the product market. The welfare-maximizing retained ownership share for the state is analyzed; taking into account that potential buyers of firms may have limited access to finance.

Suggested Citation

  • John Bennett & James Maw, 1998. "Privatisation and Market Structure in a Transition Economy," William Davidson Institute Working Papers Series 175, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1998-175
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    References listed on IDEAS

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    1. Demougin, Dominique & Sinn, Hans-Werner, 1994. "Privatization, risk-taking, and the communist firm," Journal of Public Economics, Elsevier, vol. 55(2), pages 203-231, October.
    2. Grosfeld, Irena & Roland, Gérard, 1995. "Defensive and Strategic Restructuring in Central European Enterprises," CEPR Discussion Papers 1135, C.E.P.R. Discussion Papers.
    3. Hans-Werner Sinn & Alfons J. Weichenrieder, 1997. "Foreign direct investment, political resentment and the privatization process in eastern Europe," Economic Policy, CEPR;CES;MSH, vol. 12(24), pages 177-210, April.
    4. Blanchard, Olivier Jean, 1994. "Transition in Poland," Economic Journal, Royal Economic Society, vol. 104(426), pages 1169-1177, September.
    5. Susan J Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 40(2), pages 5-52, July.
    6. Bennett, John & Estrin, Saul & Hare, Paul, 1999. "Output and Exports in Transition Economies: A Labor Management Model," Journal of Comparative Economics, Elsevier, vol. 27(2), pages 295-317, June.
    7. Marc Duponcel, 1998. "Restructuring of food industries in the five Central and Eastern European front-runners towards EU membership (CEEC-5). A comparative review," CERT Discussion Papers 9806, Centre for Economic Reform and Transformation, Heriot Watt University.
    8. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-147, Supplemen.
    9. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-940, December.
    10. Mathias Dewatripont & Gérard Roland, 1996. "Transition as a process of large-scale institutional change," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 4(1), pages 1-30, May.
    11. Greg Shaffer & Stephen W. Salant, 1999. "Unequal Treatment of Identical Agents in Cournot Equilibrium," American Economic Review, American Economic Association, vol. 89(3), pages 585-604, June.
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    Cited by:

    1. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    2. Walsh, Patrick Paul & Whelan, Ciara, 2001. "Firm performance and the political economy of corporate governance: survey evidence for Bulgaria, Hungary, Slovakia and Slovenia," Economic Systems, Elsevier, vol. 25(2), pages 85-112, June.
    3. Hsu, Su-Ying & Lo, Chu-Ping & Wu, Shih-Jye, 2014. "The nexus of market concentration and privatization policy in mixed oligopoly," Economic Modelling, Elsevier, vol. 38(C), pages 196-203.
    4. Maw, James, 2002. "Partial privatization in transition economies," Economic Systems, Elsevier, vol. 26(3), pages 271-282, September.
    5. Chen, Chien-Hsun & Mai, Chao-Cheng & Liu, Yu-Lin & Mai, Shin-Ying, 2009. "Privatization and optimal share release in the Chinese banking industry," Economic Modelling, Elsevier, vol. 26(6), pages 1161-1171, November.
    6. Pehr-Johan Norbäck & Lars Persson, 2012. "Privatization, investment, and ownership efficiency," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 765-786, October.
    7. Norbäck, Pehr-Johan & Persson, Lars, 2003. "Privatization and Restructuring in Concentrated Markets," Working Paper Series 605, Research Institute of Industrial Economics.
    8. Bennett, John & Maw, James, 2003. "Privatization, partial state ownership, and competition," Journal of Comparative Economics, Elsevier, vol. 31(1), pages 58-74, March.
    9. Arghya Ghosh & Manipushpak Mitra & Bibhas Saha, 2015. "Privatization, Underpricing, and Welfare in the Presence of Foreign Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(3), pages 433-460, June.
    10. Bibhas Saha, 2009. "Mixed ownership in a mixed duopoly with differentiated products," Journal of Economics, Springer, vol. 98(1), pages 25-43, September.

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