Corruption and Positive Selection in Privatization

Molinari, M. Cristina; Buia, Raluca

doi:10.2139/ssrn.1311204

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Corruption and Positive Selection in Privatization

University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 43/WP/2008

18 Pages Posted: 6 Dec 2008

See all articles by M. Cristina Molinari

M. Cristina Molinari

Ca' Foscari University of Venice, Dipartimento di Economia

Raluca Buia

Ca Foscari University of Venice

Date Written: December 4, 2008

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 raise expected social welfare above what an honest Government could get.

Keywords: Corruption, Privatization, Private vs. public provision

JEL Classification: D73, H44, K42, L33

Suggested Citation: Suggested Citation

Molinari, M. Cristina and Buia, Raluca, Corruption and Positive Selection in Privatization (December 4, 2008). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 43/WP/2008, Available at SSRN: https://ssrn.com/abstract=1311204 or http://dx.doi.org/10.2139/ssrn.1311204