In practice, governments in transition and other economies often retain some shares in privatized firms. For a two-firm differentiated-product oligopoly, we show how partial state ownership affects the firms' subsequent investment and output behavior. Hence, we determine how the optimum retained...

In their privatization programs, transition governments have frequently given away shares (so-called 'mass privatization'), while maintaining significant minority ownership. We explain the rationality of this behavior for an expected net-revenue maximizing government. Our argument rests on a...