SFB 303 Discussion Paper No. A - 151
Author: Bös, Dieter, and Wolfgang Peters
Title: Privatization, Internal Control, and Internal Regulation
Abstract: This paper develops a theory of the privatization of public enterprises. The relevant decisions are modeled
as a three-stage process: internal control, internal regulation, and privatization. Privatization is a move from an
overcontrolled public firm to an overcontrolled private firm. The firm never achieves the optimal extent of
control because the necessary replacement of public by private managers does not only lead to the desired
reduction of bureaucracy, but also to an undesired increase in profits. Moreover, the reduction of
overbureaucratization is matched by a reduction in the quality of the supplied goods.
Creation-Date: February 1988
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