Privatisation and Market Structure in a Transition Economy
Posted: 1 Mar 2001
A model is developed in which an industry of firms is privatised. The 'participation' method of privatisation is used, whereby firms are sold for cash, but the state retains a proportionate share of ownership. In each firm the new private owner has the opportunity to make a reorganisational investment, before output is produced. This investment is unobservable by the state, and therefore non-contractible. There is Cournot competition in the product market. The welfare-maximising retained ownership share for the state is analysed, taking into account that potential buyers of firms may have limited access to finance.
Keywords: Privatisation, Transition economy, Market structure
JEL Classification: L33, P21
Suggested Citation: Suggested Citation