The Life Cycle of Government Ownership

Jiahua Che ()

William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Government ownership may dominate private ownership under government failure. Such dom- inance disappears as product markets grow mature, giving rise to the need for privatization. Buyers' limited wealth imposes a constraint on how and when privatization takes place. In particular, ¯rms may be underpriced during privatization, and privatization may take place at a sub-optimal timing which results in ¯rm performances to deteriorate in the short run, and to improve only in the long run. Partial privatization may alleviate the constraint in some cases but exacerbates the e±ciency loss in others. When the government is lesser an interventionist or when the product market grows mature very rapidly, privatization is likely to take place at a sub-optimal timing. The analysis is applied to the dynamics of the Chinese non-state sector.

Keywords: government rent seeking; government ownership; privatization (search for similar items in EconPapers)
JEL-codes: K40 L20 P30 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2003-10-01
New Economics Papers: this item is included in nep-law
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Citations: View citations in EconPapers (1)

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