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Privatization, Bureaucracy, and Risk Aversion
Dennis Patrick Leyden and Albert N. Link
Vol. 76, No. 3 (Jul., 1993), pp. 199-213
Published by: Springer
Stable URL: http://www.jstor.org/stable/30025707
Page Count: 15
You can always find the topics here!Topics: Government bureaucracy, Risk aversion, Production engineering, Capital costs, Political risk insurance, Political risk, Financial risk, Privatization, Commercial production, Risk aversion preference
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The role of governmental risk aversion in the decision to privatize the production of goods and services has not been examined closely. Using a model of a risk-averse, single-service Niskanen bureaucrat, we determine the conditions under which a bureaucrat will prefer to privatize rather than produce in-house. If the private-sector firm is risk neutral, the result will be a fixed-fee contract with complete insurance. If the private-sector firm is risk averse, the result will be a cost-plus contract with the degree of cost sharing determined by the bureaucrat's share of total risk aversion. In both cases, the bureaucrat's sponsor may affect the likelihood of privatization by manipulating the rewards and penalties imposed on the bureaucrat.
Public Choice © 1993 Springer