Privatisation

1. In the market economy

- Objectives
+ Increase efficiency
+ Create shared ownership structure. ESOP
+ Boost government revenue
- Methods
+ Total/partial sale: sale to willing investors/flotation
+ Network structure
+ Contracting out services
- Issues:
+ Contradicting objectives:
+ Value at flotation
+ Regulation: independent regulators -> gov not intervening
+ Assumption about SOEs and subsidies: too big to fail (Kornai) Boykco
+ Sustainability: renationalization: East Coast rail
2. In transition economy
Not suffering market failure -> direct privatization
Equity net
- Objectives:
+ Same as market, plus:
+ Create market, especially capital market for industries mostly monopoly
before.
+ Competition -> Increase quality
+ Restructuring: under central planning firms .
- Methods:
+ Same as market, plus
+ Massive
+ To insiders
- Issues:
+ Safety net
+ Who to privatize to: insiders/outsiders (shleifer & vishny)
domestics/foreign
+ Lack of capital base, regulations (no law, low capacity of civil servants,
supporting institutions).
+ Undeveloped stock market.
+ Transition process (asset stripping)
+ Obsolete equipment
3. Empirical issues
- X-efficiencies, productivity: estrin et al (09), brown (06).
- Employment: Basu et al: labour hoarding
- Endogeneity: estrin, brown
- Estrin et al paper (09)
+ Evaluation study. 34 papers dealing with productivity. Choose only ones
that deal with endogeneity
+ CEE vs CIS, in which CIS previously communist countries after fallout of
Soviet union in 90s.
+ Factors: tfp and labour p, profitability, revenue/revenue growth,
employment and wage:

. tfp: CEE: positive impact of relative ownership private over state, higher
to foreign than domestic. CIS: either small or insignificant, to foreign or
domestic.
Labor p same
. profitabily: small/insiginificant. Only found in CEE papers
. Revenue: small positive revenue growth either to foreign or domestic in
CEE. CIS: positive in early state then negative
. employment and wage: either increase or keep employment. Pay less in
state ownership than private ownership.
Foreign more desirable than Domestic: managerial skills, corruption.
Privatisation not always effective, depends.
Brown paper (06)
Hung Romania (CEE) vs Ukraine and Russia (CIS)
Focus on productivity
+ Hung: slow, Ro:bulk. U&R slow then in bulk. Hung mostly to foreign, Ro
also to foreign, Ukraine and Russia domestic.
+ Equation:
+ Selection different. OLS, FE and FT. In general positive. Hung>
+ Foreign more productive than domestic. Both.
+ Time: immediate impact Hung, Ro. Ukraine: positive, after 3 years.
Russia: negative after 5 years.
+ Productivity grow in

LMFs
1. Productivity: Craig + Pencavel (95)
- Incentives:
Reduce agency cost. Stay and invest in firms. Share info. Training.
- Voices
Better
Plywood industry in Pacific Northwest. 68 -86