Privatization and Restructuring: An Incomplete – Contract Approach
نویسنده
چکیده
This paper deals with a special hold-up problem in privatization. Since the enterprise, which is to be privatized, has to be restructured in a situation of uncertainty and the restructuring investments are sunk when the final decision on the sale price is taken in renegotiations, there is an imminent danger that restructuring is not done on an efficient scale, and there is underinvestment. We consider, in turn, restructuring by the private buyer of the firm, by a government privatization agency, and by both. We show that in the first two cases — one–sided restructuring — a first best can be achieved. In the case of both–sided restructuring, however, the first best cannot be reached if both parties engage in restructuring after signing the contract.
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