The proper scope of government reconsidered: Asymmetric information and incentive contracts

Patrick Schmitz

European Economic Review, 2023, vol. 157, issue C

Abstract: We revisit the contract-theoretic literature on privatization initiated by Hart et al. (1997). This literature has two major shortcomings. First, it is focused on ex-ante investment incentives, whereas ex-post inefficiencies which are ubiquitous in the real world cannot be explained. Second, ownership does not matter when incentive contracts can be written. Both shortcomings are due to the fact that this literature has studied the case of symmetric information only. We explore how asymmetric information leads to different kinds of ex-post inefficiencies depending on the ownership structure. Moreover, we show that under asymmetric information ownership matters even when incentive contracts are feasible.

Keywords: Incomplete contracts; Privatization; Control rights; Asymmetric information; Investment incentives (search for similar items in EconPapers)
JEL-codes: D23 D82 D86 H11 L33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S001429212300140X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Proper Scope of Government Reconsidered: Asymmetric Information and Incentive Contracts (2023)
Working Paper: The Proper Scope of Government Reconsidered: Asymmetric Information and Incentive Contracts (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:157:y:2023:i:c:s001429212300140x

DOI: 10.1016/j.euroecorev.2023.104511

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().