Privatization, risk-taking, and the communist firm

Dominique Demougin () and Hans-Werner Sinn

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: This paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets. The methods include cash sales, a give-away scheme, and a participation contract where the government retains a sleeping fractional ownership in the firm. It is shown that, with competitive bidding, the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government. Under weak conditions, the participation contract will induce more investment than the give-away scheme, and it may even share the cash sales’ virtue of incentive compatibility.

Date: 1994
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Citations: View citations in EconPapers (7)

Published in Journal of Public Economics 2 55(1994): pp. 203-231

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Related works:
Journal Article: Privatization, risk-taking, and the communist firm (1994)
Working Paper: Privatization, Risk-Taking, and the Communist Firm (1993)
Working Paper: Privatization, Risk Taking and the Communist Firm (1992)
Working Paper: Privatization, Risk-Taking and the Communist Firm (1992)
Working Paper: Privatization, Risk-Taking, and the Communist Firm (1992)
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