POLITICIANS AND FIRMS

We present a model of bargaining between politicians and managers that explains many stylized facts about the behavior of state firms, their commercialization, and privatization. Subsidies to public enterprises and bribes from managers to politicians emerge naturally in the model . We use the model and several extensions to understand why commercial ization and privatization might work, and what forces contribute to ef fective restructuring of public enterprises. We illustrate the model u sing examples from several countries.