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Dynamic Privatization Policy
Author(s) -
Sato Susumu,
Matsumura Toshihiro
Publication year - 2019
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12217
Subject(s) - oligopoly , economics , incentive , distortion (music) , competitor analysis , government (linguistics) , market economy , product market , revenue , shadow (psychology) , welfare , business , finance , psychology , amplifier , linguistics , philosophy , management , cmos , electronic engineering , engineering , psychotherapist
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.