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Can There Be Too Much Privatization? The Role of Political Incentives

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  • Kira Fuchs
  • Silke Uebelmesser

Abstract

Generally, privatization of state-owned enterprises is believed to enhance economic efficiency and competitiveness and to improve the overall economic performance of a country. So, can there be too much privatization? We show that this depends on the political objectives that are pursued with a privatization policy. We study two types of government: a budget-oriented one which aims at generating revenues and which shows some similarities to the governments of the GIIPS countries (Greece, Italy, Ireland, Portugal, and Spain); and a citizen-oriented one which aims at maximizing the income of its citizens and which bears some resemblance to the East European transition countries. In accordance with the empirical literature, the budget-oriented type shows a larger propensity to privatize than the citizen-oriented type. But for both types of government, we identify instances where they privatize too much relative to the social optimum. It follows that privatization programs must be designed with the necessary caution. (JEL codes: L33, D72, D73, H82)

Suggested Citation

  • Kira Fuchs & Silke Uebelmesser, 2014. "Can There Be Too Much Privatization? The Role of Political Incentives," CESifo Economic Studies, CESifo Group, vol. 60(4), pages 722-746.
    • Handle: RePEc:oup:cesifo:v:60:y:2014:i:4:p:722-746.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifu025
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    Cited by:

    1. Svejnar, Jan & Hagemejer, Jan & Tyrowicz, Joanna, 2018. "Are Rushed Privatizations Substandard? Analyzing Firm-level Privatization under Fiscal Pressure," CEPR Discussion Papers 12991, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H82 - Public Economics - - Miscellaneous Issues - - - Governmental Property

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