Privatising the Crown Jewels: A Theoretical Analysis of Partial Privatisation

Abstract

This paper examines partial privatisation and share allocation. We consider two types of private investors, institutional and retail, who differ in their ability to exercise control. We show that for a politician primarily interested in proceeds, institutional participation is optimal as it promotes monitoring with a positive impact on proceeds. If the politician is interested in both control and proceeds, institutional and retail participation is optimal as it generates substantial proceeds at a minimum cost to control. Finally, for a politician primarily interested in control, it is optimal to allocate a minority stake to retail investors.