Insider-Privatisation, Employment and Managerial Efficiency

Posted: 2 Sep 1999

See all articles by Olivier Debande

Olivier Debande

European Union - European Investment Bank

Guido Friebel

Goethe University Frankfurt; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Date Written: May 1996

Abstract

Insider-privatisation is, due to the political influence of incumbent managers and workers, the predominant form of privatisation in many transition economies. The model argues that while insider-privatisation often provides better managerial incentives, reform governments may not always wish to insider-privatise, since they face a trade-off: on the one hand, transferring cash-flow rights provides better managerial incentives, and preservation of high employment without subsidisation. On the other hand, insider- privatisation involves the loss of control over restructuring funds and employment, and thus leads to more unemployment subsidies. We show that partial privatisation (regulation) in which the state keeps control over restructuring funds and unemployment, may not only provide better managerial incentives than full privatisation, but does also increase the state's propensity to privatise.

JEL Classification: O0

Suggested Citation

Debande, Olivier and Friebel, Guido, Insider-Privatisation, Employment and Managerial Efficiency (May 1996). Available at SSRN: https://ssrn.com/abstract=5203

Olivier Debande

European Union - European Investment Bank ( email )

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Guido Friebel (Contact Author)

Goethe University Frankfurt ( email )

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Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
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