Large shareholders, private benefits of control, and optimal schemes of privatization

Francesca Cornelli, David D. Li

Research output: Contribution to journalArticlepeer-review

36 Scopus citations

Abstract

We analyze optimal schemes for privatization of state enterprises when foreign investors are potential buyers. The highest bidders may not be the best large shareholders for the state enterprise, since their bid may reflect only their high private benefit of control. The government finds itself facing a tradeoff between trying to obtain the highest possible payment (the "revenue" objective) and identifying the company that will operate better in the future (the "efficiency" objective). Therefore, ordinary auctions are not appropriate. Our optimal privatization schemes in many cases require the use of the number of shares sold as a crucial instrument to attract the most efficient investors.

Original languageEnglish (US)
Pages (from-to)585-604
Number of pages20
JournalRAND Journal of Economics
Volume28
Issue number4
DOIs
StatePublished - 1997

ASJC Scopus subject areas

  • Economics and Econometrics

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