Does Inefficiency Justify Privatization? The Case of Intermediate Industry Monopolies
27 Pages Posted: 17 Sep 2004
Date Written: September 2004
In this paper, we study the divestiture of state monopolies frequently found in intermediate industries. Using a theoretical model of an aggregate economy, we restrict our attention to the case where the monopolistic structure is preserved in the process of privatization. We consider the presence of productive inefficiencies within the state monopolies as well as the impact of other inefficiencies produced by slow bureaucracies. Moreover, we allow these SOE's to run publicly financed deficits. We then use the results of the model to analyze the macroeconomic impact of such privatizations.
JEL Classification: O20, O40
Suggested Citation: Suggested Citation