Zsuzsanna Fluck

Privatizing in stages and the dynamics of ownership structure

Abstract We examine the dynamics of privatization and provide an explanation for the different patterns of evolution of private ownership. In our model the government simply chooses the degree of privatization (and associated corporate governance mechanisms) and delegates production to the management. The managements objective and its alignment with that of the government is determined by the level of privatization. We have a complete characterization of privatization dynamics for all possible stochastic evolutions of the economy in the history-independent case. We also characterize the privatization dynamics when the economy exhibits habit formation, learning by doing and revolution of rising expectations. In particular we are able to distinguish characteristics of privatization in stages (experimentation) from those of partial privatization (hesitation). We illustrate the model using examples from several countries.