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The Life Cycle of Government Ownership

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  • Jiahua Che

Abstract

Government ownership may dominate private ownership under government failure. Such dom- inance disappears as product markets grow mature, giving rise to the need for privatization. Buyers' limited wealth imposes a constraint on how and when privatization takes place. In particular, firms may be underpriced during privatization, and privatization may take place at a sub-optimal timing which results in firm performances to deteriorate in the short run, and to improve only in the long run. Partial privatization may alleviate the constraint in some cases but exacerbates the e??ciency loss in others. When the government is lesser an interventionist or when the product market grows mature very rapidly, privatization is likely to take place at a sub-optimal timing. The analysis is applied to the dynamics of the Chinese non-state sector.

Suggested Citation

  • Jiahua Che, 2003. "The Life Cycle of Government Ownership," William Davidson Institute Working Papers Series 2003-627, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2003-627
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    References listed on IDEAS

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    1. Lu, Jiangyong & Tao, Zhigang & Yang, Zhi, 2010. "The costs and benefits of government control: Evidence from China's collectively-owned enterprises," China Economic Review, Elsevier, vol. 21(2), pages 282-292, June.

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    More about this item

    Keywords

    government rent seeking; government ownership; privatization;
    All these keywords.

    JEL classification:

    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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