TY  - JOUR
AU  - Demougin,Dominique
AU  - Sinn,Hans-Werner
TI  - Privatization, Risk-Taking, and the Communist Firm
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4205
PY  - 1995
Y2  - March 1995
UR  - http://www.nber.org/papers/w4205
L1  - http://www.nber.org/papers/w4205.pdf
N1  - Author contact info:
Hans-Werner Sinn
Ifo Institute -
Leibniz Institute for Economic Research
at University of Munich
Poschingerstr. 5
81679 Munich
GERMANY
Tel: 49-89-21802748
Fax: 49-89-397303;49-89-8506434 (home)
E-Mail: sinn@ifo.de
AB  - This paper studies alternative methods of privatizing a formerly communist firm in the presence of imperfect risk markets. The methods include cash sales, a give-away scheme, and a participation contract where the government retains a sleeping fractional ownership in the firm. It is shown that, with competitive bidding, the participation contract dominates cash sales because it generates both more private restructuring investment and a higher expected present value of revenue for the government. Under weak conditions, the participation contract will induce more investment than the giveaway scheme, and it may even share the cash sales' virtue of incentive compatibility.
ER  -