Privatization and Restructuring: An Incomplete-Contract Approach

Author/Editor:

Dieter Bös

Publication Date:

September 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Since an enterprise, which is to be privatized, has to be restructured in uncertainty, and the restructuring investments are sunk when the final decision on the sale price is taken, there is an imminent danger that restructuring is not efficient, and there is underinvestment. We consider, restructuring by the private buyer of the firm, by a government privatization agency, and by both. In the first two cases—one-sided restructuring—a first best can be achieved. In the case of both-sided restructuring, however, the first best cannot be reached if both parties engage in restructuring after signing the contract.

Series:

Working Paper No. 1996/101

Subject:

Economic sectors Privatization

English

Publication Date:

September 1, 1996

ISBN/ISSN:

9781451852486/1018-5941

Stock No:

WPIEA1011996

Pages:

20

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