This text gives an 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. Their approach encountered widespread criticism in the
public as well as the academic literature.
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