This paper analyzes economy-wide privatization as a two-period sequential game with incomplete information, focusing on the potential for dynamic inconsistency of this reform. Governments have two main conflicting objectives: privatization and preservation of jobs. At the outset of the game, private agents do not know the weights attached to each objective by their government. It is shown that the game may present either a separating or a pooling Bayesian equilibrium, contingent upon the type of government. While some slow privatizers may successfully signal themselves in the eyes of private agents, others may attempt to build a reputation of “fast privatizers”.
BESANCENOT, D. et VRANCEANU, R. (1997). Reputation in a Model of Economy-wide Privatization. ESSEC Business School.