Publicly subsidized privatization: a simple model of dysfunctional privatization

This paper points out the limitations of the privatization programme in Bangladesh, with particular reference to the debt-default status of privatized firms. First, detailed analysis of the debt-default status of privatized firms is presented using data obtained from the central bank. Secondly, a simple model of dysfunctional privatization is constructed to show that perverse outcomes of privatization are possible. The experience of developing economies, such as Bangladesh, lends credence to the results of this model. Finally, various types of privatization are classified following Bhagwati's (1982) typology of directly unproductive profit-seeking activities.