If a bad project is saved by the bailout, the total revenues for the company/state are still lower than total costs (i.e. revenues which do not include the private gains of the manager or the external costs).

Even a really low probability of the bailout (sigma equal to eat least 0.05) would convince the manager to try the risk with the bad project.

Unless there are significant external costs, the state would strictly prefer liquidation. Taking this signal into account, there is a good chance that bad projects would never be implemented in the first place.

If (as indicated) the state ignores external effects and effects on the manager, it would be indifferent between liquidation and the bailout.

If the government (center) takes into account only the profits for the enterprise (and not the effects on the manager or possible external effects), it would strictly prefer the bailout. This might influence the managers' estimates of the probability of the bailout and thus increase the incidence of bad projects.

The threat of losses during the liquidation scenarios would convince the managers to be more cautious, they would only ask the state to support bad projects if the probability of the bailout is fairly high (more than 0.5).

It seems that especially authoritarian governments see the system as an opportunity to stabilize or reinforce their control. The system has been characteristic for an increasing number of countries.

Share of global population living in a similar system is quite high and it is increasing.

The system is just a theoretical construct proposed by Marx, it was never fully implemented.

State capitalism is extremely rare, only 1 country (DPRK) or at most 2 countries (DPRK and Cuba) would fit the definition of the system rather well.

Higher investment of the state-owned companies, especially into R&D activities.

Rise in corruption and corruption-like activities.

Hoarding behavior – both by households and by companies.

Emergence of black markets with significantly higher prices.

Treisman demonstrates that the Loans for Shares program had a comparable effect on companies' performance and governance as Russian voucher privatization.

Treisman confirms that the transfer of important companies to the hands of oligarchs was the biggest problem of this form of privatization.

Many of the original claims on how much the new owners underpaid were significantly exaggerated; they did not take into account the significant risk premia (esp. for external participants).

Treisman shows that the "sale" of companies to oligarchs was not necessarily the biggest problem; he attempts to draw attention to the other type of results, the role of incumbent Soviet-era managers.

Simple auctions were never used in privatizations (not even for less important types of assets).

The biggest advantage (and also the biggest disadvantage) of auctions is the presence of a single criterion which determines who wins.

Compared to other methods of sale, it is much easier to cheat in auctions (i.e. auctions are much easier to manipulate).

Economists quite like auctions: they are transparent and do not require the seller to have a too clear idea about the value of the asset on sale.

The ratchet effect explains the resilience of economic elites, specifically the fact that many high-ranking decisionmakers (deputy managers) from pre-transition period remained in influential positions.

The ratchet effect describes situations in which managers prefer not to use up all opportunities for increasing output (and exceeding the original plan) as they are risk-averse and prefer to have reserve capacities for future plans. 

It was an effect typical for new owners of privatized companies right after voucher privatization, it was a strategy which helped the lucky few of them the majority control over privatized enterprises.

The ratchet effect describes situations in which managers volunteer to produce significantly more than they were supposed to produce and thus make plans harder to achieve.

DPRK (North Korea)

Belarus

Hungary

Czechoslovakia

This form of privatization was expected to bring new resources to the company (new know-how, access to foreign service and distribution networks, better access to financing).

This method can reduce the risks of so-called wild or unofficial privatizations.

The governments were worried about immigration which typically follows the sale of companies to foreign hands.

This method can provide better continuity and reduce the risks of significant shocks in the governance of the company.

No, there are still only SOEs and TVEs in China.

Yes, China did privatize - especially between mid-90s and mid-2000s - and their privatization was actually the biggest in the world (as far as the number of privatized companies was concerned).

When China privatized its companies, most of the companies were privatized via a "loans for shares" program.

When China privatized its companies, they mostly ended in the hands of foreign owners.

The presence of phenomena such as Blat or Guanxi can reduce the efficiency of allocation: we prefer people from our "network" over strangers. 

The presence of phenomena such as Blat or Guanxi can significantly improve the quality of economic policies: policy-makers are much better informed about the real world and they are much less likely to be biased in their decisions (or let themselves be influenced by factors such as nepotism).

Guanxi is typically used to describe interpersonal networks emerging in China, Blat describes/described a similar phenomenon in the Soviet Union/Russia.

“Blat” was used to describe the situation in the USA during late 19th century (the "Robber Barrons' Period).