POLITICIANS AND FIRMS*
ANDREI SHLEIFER AND ROBERT W. VISHNY

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 commercialization and privatization might work, and what
forces contribute to effective restructuring of public enterprises. We illustrate the
model using examples from several countries.