Partial Privatization and Incomplete Contracts - the Proper Scope of Government Reconsidered

20 Pages Posted: 20 Feb 2003

See all articles by Patrick W. Schmitz

Patrick W. Schmitz

University of Cologne; Centre for Economic Policy Research (CEPR)

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Abstract

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 may well be the optimal ownership structure.

While in the standard incomplete contract model joint ownership is usually 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).

JEL Classification: L33, H82, D23

Suggested Citation

Schmitz, Patrick W., Partial Privatization and Incomplete Contracts - the Proper Scope of Government Reconsidered. Available at SSRN: https://ssrn.com/abstract=376201 or http://dx.doi.org/10.2139/ssrn.376201

Patrick W. Schmitz (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

HOME PAGE: http://schmitz.uni-koeln.de/index.php?s=mitarbeiter&t=schmitz

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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