Methods of Privatization: Auctions, Bargaining, and Give-aways Non-technical Summary

The paper surveys recent results of auction theory, bargaining theory and political economy in order to compare di erent methods of privatization. We assume that a government is not only interested in maximizing revenues from privatization but also in achieving an e cient allocation of ownership rights. We show that these two goals may be in con ict with each other. However, we argue that in a wide variety of circumstances the government should use an ascending open bid format, such as the traditional English auction. In particular, if there are more than two serious bidders, an English auction is more e cient and yields higher revenues than bargaining with a preselected buyer. Finally, if the government has to mass privatize, we show that giving away some fraction of all shares to the general population may be more e cient and yield higher revenues than a policy of selling all rms to the highest bidder. JEL classification numbers: C78, D44, D72.