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The Life Cycle of Government Ownership

  • Jiahua Che

    ()

Government ownership may dominate private ownership under government failure. Such dom- inance disappears as product markets grow mature, giving rise to the need for privatization. Buyers' limited wealth imposes a constraint on how and when privatization takes place. In particular, ¯rms may be underpriced during privatization, and privatization may take place at a sub-optimal timing which results in ¯rm performances to deteriorate in the short run, and to improve only in the long run. Partial privatization may alleviate the constraint in some cases but exacerbates the e±ciency loss in others. When the government is lesser an interventionist or when the product market grows mature very rapidly, privatization is likely to take place at a sub-optimal timing. The analysis is applied to the dynamics of the Chinese non-state sector.

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Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-627.

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Length: 49 pages
Date of creation: 01 Oct 2003
Date of revision:
Handle: RePEc:wdi:papers:2003-627
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