Privatization in Eastern Germany: Management Selection and Economic Transition

This paper suggests that management's role in enterprise restructuring and market failures in the managerial labor market help explain important features of the German privatization program. A model of adverse selection based on information advantages for private owners demonstrates how privati...

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Bibliographic Details
Published in:The American economic review 1997-09, Vol.87 (4), p.565-597
Main Author: Dyck, I J Alexander
Format: Article
Language:English
Subjects:
Adverse selection
Business enterprises
Business management
Business organization and administration
Business structures
Economic change
Economic models
Economic policy
Economic reform
Economics
Efficiency
Employment
Finance
Financial management
Germany
Germany (East)
Human resources
Investment strategies
Labor market
Labor markets
Labour market
Management
Management reports
Market
Ownership changes
Privatization
Productivity
Statistical analysis
Studies
Transitions
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Summary:This paper suggests that management's role in enterprise restructuring and market failures in the managerial labor market help explain important features of the German privatization program. A model of adverse selection based on information advantages for private owners demonstrates how privatization can improve the quality and number of western managers in eastern enterprises. These benefits can increase with the size of the transition. Evidence of management replacement and significant differences between state-owned and privatized firms from a survey of eastern German firms supports model assumptions and predictions. These results suggest the importance of management replacement to successful privatization.
ISSN:0002-8282
1944-7981