Optimal Voucher Privatization Fund Bids When Bidding Affects Firm Performance

Voucher privatization has emerged as a feature of the transition in post-communist economies. While the choice problem facing voucher holders is strikingly similar to the conventional portfolio choice problem, the voucher portfolio problem (VPP) has two important distinguishing characteristics. First, the proportion of ownership that will result from a given voucher bid for the shares of a firm offered for privatization is unknown. This follows since a pre-auction share price is lacking and knowledge of other competing voucher bids is not available. Second, the performance of the privatized firm will depend on the composition of ownership, and, as a consequence of the first characteristic, cannot be known at the time a voucher bid is submitted. In this paper we investigate the VPP when these characteristics prevail and when the bidders have various skills in managing and restructuring firms in which they have acquired ownership shares.