We analyze the incentives of a government to privatize a state owned firm. Assumingprice cap regulation, a unionized labor market and wage bargaining the government’sgains from privatization depend on two effects. While the government looses controlover the firm’s investment and employment decisions, the union’s bargaining positioncan be weakened by privatization. Since price cap regulation tends to increase the wage under privatization, the government’s incentives to privatize are low if the union’s bargaining power is high. Considering different kinds of in-vestments does not change this result qualitatively.
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Paper provided by Ifo Institute for Economic Research at the University of Munich in its series Ifo Working Paper Series with number
Ifo Working Papers No. 18.
Find related papers by JEL classification: H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out