Privatization and Restructuring: An Incomplete-Contract Approach

Dieter Boes

Journal of Institutional and Theoretical Economics (JITE), 1999, vol. 155, issue 2, 362-

Abstract: If an enterprise is restructured prior to privatization, underinvestment in restructuring is very likely. This is a special hold-up problem in privatization. Efficient restructuring can be attained if it is performed by either the buyer or a cash-revenue maximizing privatization agency. Both-sided efficient restructuring can never be achieved, neither by at-will contracts, nor by option contracts, by a special renegotiation design or by a setting where one party restructures before the contract has been signed. The worst scenario is a privatization agency which maximizes political support. This agency may even decide to privatize firms with negative value.

JEL-codes: D23 L33 (search for similar items in EconPapers)
Date: 1999
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