The Impact of Ideology on Disinvestment Decisions of a Coalition

Abstract

We build a two-stage game theoretic model to capture the effect of ideologies of parties in a coalition on disinvestment decisions. We focus on three specific aspects of ideology—ideology score of the coalition, ideology dispersion of the coalition, and ideology difference between the center and the state where the enterprise is located. The benchmark two-party coalition predicts that a left government prefers less disinvestment than a right one more often than not. However, there may be a case where moving toward the left end of the ideology spectrum may raise disinvestment incidence. Similarly, a coalition with ideologically similar parties favors privatization more frequently than one in which parties are more diverse. However, for a narrow parametric range, the effect may be reversed. Low ideological difference between the center and the state in which the enterprise is located improves disinvestment incidence. Finally, we extend the model to three-party coalitions.