Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 744: Privatization, Investment and Ownership Efficiency

Richard Friberg (), Pehr-Johan Norbäck () and Lars Persson ()
Additional contact information
Richard Friberg: Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

Abstract: We provide a model that explains the following empirical observations: i) private ownership is more efficient than public ownership, ii) privatizations are associated with increases in efficiency and iii) the increase in efficiency predates the privatization. The two key mechanisms explaining the results are: (i) a government owner keeping control takes into account the negative effect on employment of investment and (ii) a privatizing government has a stronger incentive to invest than an acquiring firm: the government exploits the fact that investments increase the sales price not only due to the increase in the acquirer's profit, but also due to a reduced profit for the non-acquirer.

Keywords: Privatization; Asset Ownership; Restructuring; Oligopoly

JEL-codes: D44; L13; L33; L40; P31

25 pages, April 10, 2008

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