Synopses & Reviews
Synopsis
Excerpt from A Theory of Partial Sales and Underpricing in Privatizations: April 1991
This paper develops a theory of gradual sales and underpricing of shares in privatizations. Gradual sales and underpricing are strategic devices used by policymakers to signal commitment when the capital markets are unsure about the government's type and attempt to infer it from observed performance.
The model establishes for which firms the use of underpricing is optimal. Further, in the context of a multiple firm model, the question of when gradual sales can be abandoned is analyzed.
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