Why and when do governments initiate public enterprise reform?

Jose Edgardo Campos, Hadi Salehi Esfahani

Research output: Contribution to journalArticlepeer-review


Initiating public enterprise reform is a complex decision influenced by economic factors as well as the ideological biases and personalities of political leaders. Nevertheless, the use of a contracting framework yields important generalizations about what drives the decision. This article argues that the decision depends fundamentally on the potential efficiency gains from the reform and its associated transactions costs. Costs arise because of asymmetries in information and opportunism, problems that usually plague contract negotiations. The article identifies observable variables that may affect either the potential gains or the transactions costs, uses them to construct a simple probit decision-making model, and tests the model using data from fifteen developing countries over a twenty-year period.

Original languageEnglish (US)
Pages (from-to)451-485
Number of pages35
JournalWorld Bank Economic Review
Issue number3
StatePublished - Sep 1996

ASJC Scopus subject areas

  • Accounting
  • Development
  • Finance
  • Economics and Econometrics


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