Privatization and the Risk of Expropriation

  • John Vickers
Part of the Central Issues in Contemporary Economic Theory and Policy book series (CICETP)


When a firm is privatized, the power to make decisions affecting its well-being is transferred more or less from agents working for the government to agents working for the private sector (1). This paper is about the more or less, which is an important qualification, because in many cases of “privatization” the power to make a number of key decisions remains with, or at least might in the future be exercised by, the government itself. For example, government may be able substantially to vary future policy towards competition and regulation in the industry where the firm operates. It might have similar discretion over tax or trade policies that affect the firm specifically. And in the extreme a future gvernment might return the firm to public ownership, possibly on “unfair” terms (2). The catch-all term “expropriation” in the title of the paper reflects, perhaps in an unduly stark fashion, the fact that these measures have the potential significantly to reduce the private value of the privatized assets.


Discount Rate Consumer Surplus Regulatory Risk Investment Incentive Investment Expenditure 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. [1]
    Aghion P.Bolton P.: ≪Government Domestic Debt and the Risk of Default; A Political-Economic Model of the Strategic Role of Debt≫, in Dornbush R.Draghi M.: Public Debt Management: Theory and History, Cambridge, Cambridge University Press, 1991.Google Scholar
  2. [2]
    Averch H.Johnson L.: ≪Behavior of the Firm under Regulatory Constraint≫, American Economic Review, n. 52. 1962, pp. 1052–69.Google Scholar
  3. [3]
    Bailey E.: ≪Innovation and Regulation≫, Journal of Public Economics, n. 3, 1974, pp. 285—95.Google Scholar
  4. [4]
    Baron D.Besanko D.: ≪Commitment and Fairness in a Dynamic Regulatory Relationship≫, Review of Economic Studies, n. 54, 1987, pp. 413–36.Google Scholar
  5. [5]
    Blanchard O.Fischer S.: Lectures on Macroeconomics, Cambridge, MIT Press, 1989.Google Scholar
  6. [6]
    Branco F.Mello A.: ≪A Theory of Partial Sales and Underpricing in Privatizations≫, MIT, EFA, Working Paper, n. 3282, 1991.Google Scholar
  7. [7]
    Central Statistical Office: ≪The 1989 Share Register Survey≫, London, HMSO, Economic Trends, n. 447, 1991.Google Scholar
  8. [8]
    Dasgupta P.Stiglitz J.: ≪Industrial Structure and the Nature of Innovative Activity≫, Economic Journal, n. 90, 1980, pp. 263–90.Google Scholar
  9. [9]
    Gilbert R.Newbery D.: ≪Regulation Games≫, London, Centre for Economic Policy Research, Discussion Paper, n. 267, 1988.Google Scholar
  10. [10]
    Greenwald B.: ≪Rate Base Selection and the Structure of Regulation≫, Rand Journal of Economics, n. 15, 1984, pp. 85–95.Google Scholar
  11. [11]
    Jenkinson T.Mayer C.: ≪The Privatization Process in France and the UK≫, European Economic Review, n. 32, 1988, pp. 482–90.Google Scholar
  12. [12]
    Kolbe L.Tye W.: ≪The Duquesne Opinion: How Much “Hope” is there for Investors in Regulated Firms≫, Yale Journal on Regulation, n. 8, 1991, pp. 113–70.Google Scholar
  13. [13]
    Lipton D.Sachs J.: ≪Privatization in Eastern Europe: The Case of Poland≫, Brookings Papers on Economic Activity, n. 2, 1990, pp. 293–333.Google Scholar
  14. [14]
    Newbery D.: ≪Reform in Hungary: Sequencing and Privatization≫, European Economic Review, n. 35, 1991, pp. 571–80.Google Scholar
  15. [15]
    Perotti E.: Credible Privatization, Boston University, mimeo, 1990.Google Scholar
  16. [16]
    Persson T.Svensson L.: ≪Why a Stubborn Conservative Would Run a Deficit: Policy with Time-Consistent Preferences≫, Quarterly Journal of Economics, n. 104, 1989, pp. 325–45.Google Scholar
  17. [17]
    Salant D.Woroch G.: Promoting Capital Improvements by Public Utilities: A Supergame Approach’, GTE Laboratories, mimeo, 1991.Google Scholar
  18. [18]
    Sappington D.Stiglitz J.: ≪Privatization, Information and Incentives≫, Journal of Policy Analysis and Management, n. 6, 1987, pp. 567–82.Google Scholar
  19. [19]
    Vickers J.: ≪Government Regulatory Policy≫, Oxford Review of Economic Policy, forthcoming 1991.Google Scholar
  20. [20]
    Vickers J.Yarrow G.: Privatization: An Economic Analysis, Cambridge, MIT Press, 1988.Google Scholar
  21. [21]
    ————: ≪Economic Perspectives on Privatization≫, Journal of Economic Perspectives, forthcoming, 1991.Google Scholar
  22. [22]
    Walters A.: ≪Arguing with Success, without Success≫, Regulation, n. 3, 1988, pp. 66–8 [Review of Vickers — Yarrow, 1988].Google Scholar
  23. [23]
    Williamson O.: Markets and Hierarchies: Analysis and Antitrust Implications, New York, Free Press, 1975.Google Scholar

Copyright information

© SIPI Servizio Italiano Pubblicazioni Internazionali Srl 1993

Authors and Affiliations

  • John Vickers
    • 1
  1. 1.University of OxfordUK

Personalised recommendations