Privatization, Investment and Ownership Efficiency
26 Pages Posted: 2 Feb 2011
Date Written: April 10, 2008
We provide a model that explains the following empirical observations: i) private ownership is more efficient than public ownership, ii) privatizations are associated with increases in efficiency and iii) the increase in efficiency predates the privatization. The two key mechanisms explaining the results are: (i) a government owner keeping control takes into account the negative effect on employment of investment and (ii) a privatizing government has a stronger incentive to invest than an acquiring firm: the government exploits the fact that investments increase the sales price not only due to the increase in the acquirer's profit, but also due to a reduced profit for the non-acquirer.
Keywords: Privatization, Asset Ownership, Restructuring, Oligopoly
JEL Classification: D44, L13, L33, L40, P31
Suggested Citation: Suggested Citation