Can cost asymmetry be a rationale for privatisation?
AbstractCost asymmetries between the public and the private firms create a rationale for privatising the public firms. We show that this argument is restrictive, since it does not allow for other ways of reducing production inefficiency, which creates the motivation for privatisation. If the profit maximising private firm is technologically superior to that of the welfare maximising public firm, the society and the private firm benefit from technology licensing. Under technology licensing, both the equilibrium output of the private firm and the equilibrium degree of privatisation are zero. However, if cost asymmetry cannot be bridged by technology licensing due to costly and/or imperfect technology transfer, the argument in favour of privatisation remains.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 29 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620165
Privatisation; Technology licensing; Welfare;
Find related papers by JEL classification:
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
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