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  3. American Economic Review
  4. March 2002
  5. Machiavellian Privatization

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Machiavellian Privatization

  • Bruno Biais
  • Enrico Perotti
American Economic Review
vol. 92, no. 1, March 2002
(pp. 240–258)
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Abstract

We analyze politically motivated privatization in a bipartisan environment. When median-class voters a priori favor redistributive policies, a strategic privatization program allocating them enough shares can induce a voting shift away from left-wing parties whose policy would reduce the value of shareholdings. To induce median-class voters to buy enough shares to shift political preferences, strategic rationing and underpricing is often necessary. In the extreme, this may lead to free share distribution and voucher privatization. Shifting voting preferences becomes impossible when strong ex ante political constraints require large upfront transfers to insiders or when social inequality is extreme. (JEL D72, L33, P16, P35)

Citation

Biais, Bruno, and Enrico Perotti. 2002. "Machiavellian Privatization ." American Economic Review 92 (1): 240–258. DOI: 10.1257/000282802760015694

JEL Classification

  • D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
  • L33 Comparison of Public and Private Enterprises and Nonprofit Institutions; Privatization; Contracting Out