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Privatization And Liberalization: Costs And Benefits In The Presence Of Wage-Bargaining

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Author Info
Sonja GRÖNBLOM
Johan WILLNER
Abstract

The most important economic motive for privatization and liberalization is to reduce costs, which are believed to be higher in a public monopoly for several reasons, including internal rent capture. We assume that there is wage-bargaining both before and after privatization and liberalization. Wages are then in most cases reduced by liberalization but not by privatization as such. Social welfare may increase after liberalization with decentralized wage-bargaining if many firms enter, if the employees' bargaining strength is high and if there is no need of vertical separation. However, the social costs of privatization and liberalization are more likely to dominate despite free entry if sunk costs are high, and will always dominate under central wage-bargaining or vertical separation. Copyright © 2008 The Authors Journal compilation © CIRIEC 2008.

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Article provided by Blackwell Publishing in its journal Annals of Public and Cooperative Economics.

Volume (Year): 79 (2008)
Issue (Month): 1 (03)
Pages: 133-160
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Handle: RePEc:bla:annpce:v:79:y:2008:i:1:p:133-160

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