Privatization in Eastern Germany: Management Selection and Economic Transition

HBS Working Paper No. 95-030

Posted: 13 Sep 1999

See all articles by I. J. Alexander Dyck

I. J. Alexander Dyck

University of Toronto - Rotman School of Management

Abstract

The German government rapidly privatized state owned enterprises thorough an auction mechanism with openness to all purchasers. Western German firms purchased most enterprises raising suggestions of inefficiency or corruption. This paper rationalizes the government approach, suggesting the key to understanding these elements of the economic transition is recognition of the need to select western management and transfer them to eastern enterprises. I demonstrate the importance of management selection through a model of adverse selection based on information advantages for private owners. Privatization can improve the quality and level of management in eastern enterprises, and these benefits can increase with the size of the transition. Evidence from East Germany supports the theoretical assumptions and is consistent with model predictions.

JEL Classification: F02, G15

Suggested Citation

Dyck, I.J. Alexander, Privatization in Eastern Germany: Management Selection and Economic Transition. HBS Working Paper No. 95-030, Available at SSRN: https://ssrn.com/abstract=6128

I.J. Alexander Dyck (Contact Author)

University of Toronto - Rotman School of Management ( email )

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Toronto, Ontario M5S 3E6 M5S 3E6
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