Methods of Privatization: Auctions, Bargaining, and Give-Aways
CEPR Discussion Paper Series No. 1541
Posted: 2 Apr 1997
Date Written: January 1997
The paper surveys recent results of auction theory, bargaining theory and political economy in order to compare different methods of privatization. We assume that a government is not only interested in maximizing revenues from privatization, but also in achieving an efficient allocation of ownership rights. We show that these two goals may conflict with each other. We argue that in a wide variety of circumstances the government should use an ascending open bid format, however, such as the traditional English auction. In particular, if there are more than two serious bidders, an English auction is more efficient and yields higher revenues than bargaining with a preselected buyer. Finally, if the government has to mass privatize, we show that giving away some fraction of all shares to the general population may be more efficient and yield higher revenues than a policy of selling all firms to the highest bidder.
JEL Classification: C78, D44, D72
Suggested Citation: Suggested Citation