SFB 303 Discussion Paper No. A-480

Author: Schmidt, Klaus M.

Title: Incomplete Contracts and Privatization

Abstract: The paper offers a selective survey on the incomplete contracts approach to privatization. Furthermore, a simple model of privatization to an owner-manager is developed in which different allocations of ownership rights lead to different allocations of inside information about the firm which in turn affect allocative and productive efficiency. In this model, privatization is a commitment device of the government to credibly reward the manager for a successful cost reduction and to harden his budget constraint.

Keywords: Incomplete Contracts, Privatization, Regulation, Soft Budget Constraint.

JEL-Classification-Number: L33, L50.

Creation-Date: March 1995
URL: ../1995/a/bonnsfa480.pdf

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