Nonetheless, it is apparent that the privatization process is weak. Not only are most privatization efforts in the world stalled by politics – some begun as long ago as the early 1990’s – but the potential for value loss as a result of inefficiently handled privatizations appears to be large. Opportunities for misappropriation of resources among those involved in the process are widespread. Citations of privatization disasters are common.
This paper considers various mechanisms by which privatization may be accomplished, and the implications of each. Each mechanism is evaluated in light of the knowledge problem, agency problems, and incentives that are created for productive, unproductive, or destructive entrepreneurial behavior, both during the process of privatization and in the aftermath. It appears that the mechanism for privatization does matter, and that some methods offer less opportunity for plans to go awry. Moreover, some plans may yield higher projected growth rates, both for the privatized company, and for the broader domestic industry.