Privatization in Eastern Germany

This book gives the first comprehensive analysis of privatization and restructuring by the Treuhandanstalt in East Germany. It also addresses the theoretical and conceptual problems of large-scale privatization in the transformation process. Contrary to many transition economies, the East German privatization approach was based on the sale of state-owned companies to strategic investors under the constraint of a mixed set of allocative criteria, including employment and investment objectives. In order to achieve these objectives, the Treuhandanstalt frequently granted huge subsidies to private investors. This required the negotiation and enforcement of complex contracts. This approach encountered widespread criticism in the public as well as the academic literature.

However, under the circumstances of incomplete information and high uncertainty, the Treuhand strategy of informal negotiations and complex contracts can be defended as more efficient than standardized privatization procedures such as auctions and vouchers.