Selling firm when its value is unknown
Our new research on privatization is gradually becoming of shape. Everybody in the literature (and in popular narrative) focuses on asset stripping and corruption involved. Meanwhile, the privatization of most of the plants went unnoticed, whereas our perceptions of corruption are to a large extent shaped by true theories and conspiracy theories related to privatization of some large enterprises.
With our fantastic data on privatization of plants, we endeavored to understand the process of privatization, if the true, productive value of firm is unknown. In principle, it was easy to observe employment in a firm, but it was really hard to forse if the firm can become productive with the currently available machinery park. Given these preconditions, we formulate a model with uncertainty about the productive value of capital, known labor and two types of investors. The good investors may raise the value of the firm, whereas the bad investors may continue to operate a firm if it is profitable, but otherwise they close the plants down and strip assets. What comes out of it? Paper will be available soon, meanwhile, we share the slides presented at Society for Institutional Economics, its Annual Congress in Montreal, presented by Janek.