The big sell: privatizing East Germany's economy

The end of communism in the 1990s probably is the most fundamental restructuring ofinstitutions witnessed in recent history. At its core was the large-scale redistribution of previouslystate-owned companies. We construct a unique firm-level dataset to study this redistribution in East Germany where the entire state-owned economy was either privatized or liquidated withinless than five years. We examine whether the privatization authority followed its mandate toprivatize competitive firms using initial labor productivity to indicate firms’ competitiveness.Our results highlight that firms with higher baseline productivity are more likely to be privatized,yield higher sales prices, are more often acquired by West German investors, and are more likelyto remain in business even 20 years after leaving public ownership. The privatization agencyplausibly contributed to these outcomes by rating and prioritizing productive firms