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Privatization, Risk-Taking, and the Communist Firm

Dominique Demougin () and Hans-Werner Sinn ()

No 4205, NBER Working Papers from National Bureau of Economic Research, Inc

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 giveaway scheme, and it may even share the cash sales' virtue of incentive compatibility.

Date: 1992-11
Note: PE
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Published as Journal of Public Economics, Vol. 55, no.2 pp. 203-231, October 1994

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