Corruption and Privatization

This paper analyses how corruption may affect privatization. In particular, we study how corruption affects the acquisition price and the post-privatization market structure. The model predicts that privatization in highly corrupt countries will result in a higher degree of market concentration than in less corrupt countries. The acquisition price is also likely to be higher when the government officials in charge of the sale are highly corrupt than if they are honest or moderately corrupt. Finally, and perhaps surprisingly, we demonstrate that a stronger propensity to embezzle state revenues, may reduce government officials' benefits from corruption.