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A Theoretical Reexamination of Privatization: Assessing its Welfare and Distributional Impacts

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  • Alvin Ang
  • Masatoshi Yamada

Abstract

Privatization was one of the significant public policy adopted by many countries in the last two decades. Previous and recent studies on its efficacy have focused mostly on the gains at the firm and industry levels. Differing from that approach, this paper attempts to reconsider impacts of the policy from a viewpoint of the economy as a whole via a theoretical examination. Specifically, it supposes an economy with two goods, two producers and two consumers. Within this economy, one of the consumers is assumed to be not able to obtain one good that is regarded as a necessity. Since it is considered that a basis of government intervention is to provide some necessity to people who would not be able to obtain it otherwise, government intervention on some production is assumed to satisfy this purpose. Utilizing the method of comparative statics, the paper shows how the welfare of different kinds of consumers is affected by this intervention. Specifically, it argues that the intervention can decrease the welfare of one consumer and increases that of the other, and that it leads to higher social welfare, showing a rationale for government intervention into the production process.

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Bibliographic Info

Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c010_028.

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Length: 22 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:deg:conpap:c010_028

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Keywords: privatization; efficiency; welfare impacts; general equilibrium;

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  1. Chisari, Omar & Estache, Antonio & Romero, Carlos, 1999. "Winners and Losers from the Privatization and Regulation of Utilities: Lessons from a General Equilibrium Model of Argentina," World Bank Economic Review, World Bank Group, vol. 13(2), pages 357-78, May.
  2. Paredes M., Ricardo, 2001. "Redistributive Impact of Privatization and the Regulation of Utilities in Chile," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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