Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered
FinanzArchiv, Vol. 57, No. 4, pp. 394-411, 2000
Posted: 17 Apr 2001
In this paper it is argued that privatization is not the only alternative to public ownership. Adopting the incomplete contract approach, it is shown that partial privatization, i.e. joint ownership, may well turn out to be the optimal property rights regime, if the trade-offs that have been emphasized in the privatization context (see Hart, Shleifer and Vishny, Quarterly Journal of Economics (1997)) are taken into account. While in the standard incomplete contract model joint ownership is often dominated, it is shown here that joint ownership in the form of partial privatization can be optimal since it mitigates the disadvantages of public ownership (no incentives to improve quality if the manager invests or too strong incentives if the government invests) and of privatization (too strong incentives for the manager to reduce costs).
Note: This is a description of the article and not the actual abstract.
Keywords: Partial privatization, incomplete contracts, property rights, joint ownership
JEL Classification: L33, H82, D23
Suggested Citation: Suggested Citation