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.