From Complete to Incomplete (Contracts): A Survey of the Mainstream Approach to the Theory of Privatisation

In this essay we survey the literature on the theory of privatisation. We look at two periods defined by their relationship to the theory of the firm. In the period up to 1990 the literature followed the theory of the firm in using a complete or comprehensive contracting modelling framework. By the end of the 1980s the ownership neutrality theorems highlighted a major weakness with this approach. The post-1990 literature took advantage of incomplete contracting models to explain the difference in the behaviour of state and privately owned firms.