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Port Competition and Welfare Effect of Strategic Privatization

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Author Info

  • Czerny, Achim

    ()
    ((WHU - Otto Beisheim School of Management))

  • Höffler, Felix

    ()
    (Energiewirtschaftliches Institut an der Universitaet zu Koeln)

  • Mun, Se-il

    ()
    (Kyoto University)

Abstract

Private operation of port facilities is becoming increasingly common worldwide and many governments consider the privatization of public ports as a policy option. We investigate the effect of port privatization in a setting with two ports located in different countries, serving their home market but also competing for transshipment traffic from a third region. Each government chooses whether to privatize its port or to keep port operations public. We show that there exist equilibria in which the two governments choose privatization. In these equilibria, national welfare is higher relative to a situation where both ports are public. Since port charges are strategic complements, privatization can act as a valuable precommitment tool for the two governments and allows for a better exploitation of the third region. However, from the perspective of maximizing the joint national welfare of both port countries, there is an inefficiently low incentive to privatize. It is also shown that a country with a smaller home market has a larger incentive to choose private port operation.

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Bibliographic Info

Paper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-13.

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Length: 20 pages
Date of creation: 24 Jan 2013
Date of revision:
Handle: RePEc:ris:ewikln:2013_013

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Keywords: Infrastructure competition; privatization; strategic delegation;

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  1. Mantin, Benny, 2012. "Airport complementarity: Private vs. government ownership and welfare gravitation," Transportation Research Part B: Methodological, Elsevier, vol. 46(3), pages 381-388.
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  12. Takahashi, Takaaki, 2004. "Spatial competition of governments in the investment on public facilities," Regional Science and Urban Economics, Elsevier, vol. 34(4), pages 455-488, July.
  13. Das, Satya P., 1997. "Strategic managerial delegation and trade policy," Journal of International Economics, Elsevier, vol. 43(1-2), pages 173-188, August.
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