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Corruption and Positive Selection in Privatization

Author

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  • Raluca E. Buia

    (Advanced School of Economics, University Of Venice C� Foscari)

  • M. Cristina Molinari

    (Department of Economics, University Of Venice C� Foscari)

Abstract

We consider the supply of a public good based on a publicly-owned facility. The Government has a choice between provision in-house and privatizing the facility and then outsourcing the production. In particular, we focus on corruption in the decision to privatize and on its effect on social welfare when there is asymmetric information on the public and private manager's efficiency. Our analysis shows that a corrupt Government, that chooses to privatize only in exchange for a bribe, makes a positive selection on the private firm's efficiency and, thus, may raise expected social welfare above what an honest Government could get.

Suggested Citation

  • Raluca E. Buia & M. Cristina Molinari, 2008. "Corruption and Positive Selection in Privatization," Working Papers 2008_43, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2008_43
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    Cited by:

    1. Maria Cristina Molinari, 2011. "Corruption in Privatization and Governance Regimes," Working Papers 2011_28, Department of Economics, University of Venice "Ca' Foscari".
    2. Gasmi, Farid & Berté, Isacco & Demoury, Louise & Kouakou, Dorgyles & Patzig, Niklas & Recuero Virto, Laura, 2024. "The privatization-corruption relationship is nonlinear: Evidence from 1985-2022 data on telecommunications in 103 countries," TSE Working Papers 24-1523, Toulouse School of Economics (TSE).
    3. M. Molinari, 2014. "A Second Best Theory of Institutional Quality," Public Organization Review, Springer, vol. 14(4), pages 545-559, December.

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    More about this item

    Keywords

    Corruption; Privatization; Private vs. public provision.;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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