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Cover of: Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered
Patrick W. Schmitz

Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered

Section: Articles
Volume 57 (2001) / Issue 4, pp. 394-411 (18)
Published 09.07.2018
DOI 10.1628/0015221012904869
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Summary
In this paper it is argued that privatization is not the only alternative to public ownership. Adopting the incomplete contract approach, it is shown that partial privatization may well be the optimal ownership structure. While in the standard incomplete contract model joint ownership is usually suboptimal, it is shown here that joint ownership in the form of partial privatization can be optimal since it mitigates the disadvantages of public ownership (no incentives to improve quality if the manager invests or too strong incentives if the government invests) and of privatization (too strong incentives for the manager to reduce costs).