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Durable goods produced by state owned enterprises

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  • Goering, Gregory E.
  • Sarangi, Sudipta

Abstract

A two-period durable-goods monopoly model is analyzed where the durable good is provided by a state owned enterprise (SOE). First, we suppose that the SOE is under pressure to provide employment, and therefore has an employment goal, as well as the traditional profit and consumer surplus objectives. Assuming that the SOE has difficulty committing to current buyers with respect to its profit and employment motives, we find that as the employment burden increases, the SOE tends to move further away from the efficient durability and provides a lower durability level than a pure profit maximizer. Additionally, we show that a durable-goods SOE without commitment power, will wish to partially privatize to help mitigate its commitment problem with buyers and increase social welfare. Both of these findings provide economic rationale for the partial privatization of SOEs in transitioning economies that have not been identified in the literature prior to this.

Suggested Citation

  • Goering, Gregory E. & Sarangi, Sudipta, 2012. "Durable goods produced by state owned enterprises," Economic Modelling, Elsevier, vol. 29(3), pages 893-899.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:3:p:893-899
    DOI: 10.1016/j.econmod.2011.11.004
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    References listed on IDEAS

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    More about this item

    Keywords

    State owned enterprise; Durable goods; Privatization;
    All these keywords.

    JEL classification:

    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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