Insider-Privatisation, Employment and Managerial Efficiency
Posted: 2 Sep 1999
Date Written: May 1996
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: Suggested Citation