Corruption and positive selection in privatization |
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| Authors: | Raluca E Buia M Cristina Molinari |
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| Institution: | 1. Milgard School of Business, University of Washington Tacoma, 1900 Commerce St., Campus Box 358420, Tacoma, WA 98402, United States;2. School of Business, University at Albany – SUNY, 1400 Washington Ave., Albany, NY 12222, United States;3. College of Business, Florida International University, Modesto A. Maidique Campus, 11200 S.W. 8th St, RB 247B, Miami, FL 33199, United States |
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| Abstract: | We consider the supply of a public good based on a publicly owned facility. The Government has a choice between provision in-house and privatizing the facility and then outsourcing the production. In particular, we focus on corruption in the decision to privatize and on its effect on social welfare when there is asymmetric information on the public and private manager's efficiency. Our analysis shows that a corrupt Government, that chooses to privatize only in exchange for a bribe, makes a positive selection on the private firm's efficiency and, thus, may have a positive effect on social welfare. |
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