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P rivatization in a S mall O pen E conomy with I mperfect C ompetition
Author(s) -
GHOSH ARGHYA,
SEN PARTHA
Publication year - 2012
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2012.01546.x
Subject(s) - tariff , welfare , production (economics) , investment (military) , revenue , economics , capital (architecture) , government (linguistics) , business , international economics , microeconomics , market economy , finance , linguistics , philosophy , archaeology , politics , political science , law , history
We look at privatization in a general equilibrium model of a small, tariff‐distorted, open economy. There is a differentiated good produced by both private and public sector enterprises. A reduction in government production in order to cut losses from such production raises the returns to capital and increases the tariff revenue, which are welfare‐improving. However, privatization also leads to lower wages and possibly fewer private brands. This lowers workers’ welfare, which may make privatization politically infeasible. Privatization can improve workers’ welfare with complementary reforms, e.g., attracting foreign investment or trade liberalization.