Dynamic Privatization Policy

23 Pages Posted: 11 Dec 2018

See all articles by Susumu Sato

Susumu Sato

Institute of Economic Research, Hitotsubashi University

Toshihiro Matsumura

University of Tokyo - Institute of Social Science

Date Written: January 2019

Abstract

This study formulates a two‐period model of mixed oligopoly in which the government privatizes a state‐owned public firm over multiple periods. We introduce the shadow cost of public funding (i.e., the excess burden of taxation). The government is concerned about both the total surplus and the revenue obtained from the privatization of the public firm. We find that the government may or may not increase the degree of privatization over time depending on the competitiveness of the product market and nationality of private competitors. The government increases the degree of privatization over time if the product market is competitive and the foreign ownership share in private firms is low. Although it adjusts its privatization policy over time, this harms welfare. In addition, this distortion in the ex post incentive leads to too low a degree of privatization in the first period.

Suggested Citation

Sato, Susumu and Matsumura, Toshihiro, Dynamic Privatization Policy (January 2019). The Manchester School, Vol. 87, Issue 1, pp. 37-59, 2019, Available at SSRN: https://ssrn.com/abstract=3299649 or http://dx.doi.org/10.1111/manc.12217

Susumu Sato (Contact Author)

Institute of Economic Research, Hitotsubashi University ( email )

Tokyo
Japan

Toshihiro Matsumura

University of Tokyo - Institute of Social Science ( email )

Hongo 7-3-1
Tokyo, TOKYO 113-0033
Japan

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