WHY AND WHEN DO GOVERNMENTS INITIATE PUBLIC-ENTERPRISE REFORM

Initiating public enterprise reform is a complex decision influenced b y economic factors as well as the ideological biases and personalities of political leaders. Nevertheless, the use of a contracting framewor k yields important generalizations about what drives the decision. Thi s article argues that the decision depends fundamentally on the potent ial efficiency gains from the reform and its associated transactions c osts. Costs arise because of asymmetries in information and opportunis m, problems that usually plague contract negotiations. The article ide ntifies observable variables that may affect either the potential gain s or the transactions costs, uses them to construct a simple probit de cision-making model, and tests the model using data from fifteen devel oping countries over a twenty-year period.