Merchants of Reputation Privatization Under Elites’ Manipulation of Information

Abstract

An economic elite wants to buy a public asset as cheaply as possible. Its ownership is decided by an incumbent politician who can be of high or low competence. The elite can make a buying offer for the asset and manipulate the information that is available to voters about the incumbent’s competence. By attacking the incumbent (trying to uncover bad news about his competence before making him an offer) or threatening him (with uncovering bad news if he refuses to sell), I show that the elite can reduce the prices that the incumbent would accept for selling the asset. I also show that the elite often (but not always) uses threats against a leading incumbent (one who has better reputation than his challenger) and attacks against a trailing one. I further find that a better reputation can actually render an incumbent more susceptible to the elite’s influence.

Keywords: Elites, Information manipulation, Privatization