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Privatization and nationalization cycles, Volume 1
 
Author:Chang, Roberto; Hevia, Constantino; Loayza, Norman; Collection Title:Policy Research working paper ; no. WPS 5029Paper is funded by the Knowledge for Change Program (KCP)
Country:World; Date Stored:2009/08/31
Document Date:2009/08/01Document Type:Policy Research Working Paper
SubTopics:Political Economy; Economic Theory & Research; Emerging Markets; Markets and Market Access; Labor PoliciesLanguage:English
Major Sector:Public Administration, Law, and JusticeRel. Proj ID:1W-Growth, Innovation, And Reform -- -- P102585;
Region:The World RegionReport Number:WPS5029
Sub Sectors:Central government administrationTF No/Name:TF057095-KCP:
Volume No:1  

Summary: This paper studies the cycles of nationalization and privatization in resource-rich economies as a prime instance of unstable institutional reform. The authors discuss the available evidence on the drivers and consequences of privatization and nationalization, review the existing literature, and present illustrative case studies. This leads to the main contribution of the paper: a static and dynamic model of the choice between private and national regimes for the ownership of natural resources. In the model, the basic tradeoff is given by equality (national ownership) versus efficiency (private ownership). The connection between resource ownership and the equality-efficiency tradeoff is given by the incentives for effort that each regime elicits from workers. The resolution of the tradeoff depends on external and domestic conditions that affect the value of social welfare under each regime. This leads to a discussion of how external conditions—such as the commodity price—and domestic conditions—such as the tax system-- affect the choice of private vs. national regimes. In particular, the analysis identifies the determinants of the observed cycles of privatization and nationalization.

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