Corruption and privatization

This paper analyses the relation between corruption and privatization. In particular, we study how corruption affects the acquisition price and the post-privatization market structure. The model predicts that privatization in countries with highly corrupt government results in a higher degree of market concentration than in countries where governments are less corrupt. The acquisition price is also likely to be higher when a government is highly corrupt than when government officials 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. The reason is that the more eager the government officials are to take bribes, the cheaper they are to buy.