Managerial Career Concerns, Privatization and Restructuring in Transition Economies

Gérard Roland and Khalid Sekkat

No 1363, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We set up a dynamic adverse selection model to explain how career concerns may induce managers in state-owned enterprises (SOEs) to restructure their firms. It is shown how government monopsony power over managers led to the ratchet effect under the socialist economy, even under reforms coming short of privatization. The introduction of a managerial labour market, through privatization, introduces competition for managers and eliminates the ratchet effect, thereby inducing managers to restructure. Prospects of privatization also provide incentives to restructure even when managerial skills are asset-specific, provided insider control is strong enough to give managers enough rents from privatization. The model is consistent with the empirical evidence on restructuring of SOEs in transition economies.

Keywords: Managerial Career Concerns; Privatization and Restructuring; Transition Economies (search for similar items in EconPapers)
JEL-codes: D29 H39 P29 (search for similar items in EconPapers)
Date: 1996-03
References: Add references at CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Managerial career concerns, privatization and restructuring in transition economies (2000)
Working Paper: Managerial career concerns, privatization and restructuring in transition economies (2000)
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