Partial State Ownership in the Hospitality Industry

Privatization often leads to improved efficiency and productivity in the privatized enterprises. Private firms typically have stronger incentives to cut costs, innovate, and respond to market demands compared to state-run enterprises. Privatization also reduces the administrative and financial burden on the government, allowing it to focus on core functions such as regulation, policy-making, and public welfare. Privatization in the hospitality industry involves transferring ownership or management of hotels, resorts, and other hospitality-related services from the public sector to private entities. Privatization in the hospitality industry can have both positive and negative impacts on environmental sustainability. Using a mixed duopoly model, this paper examines the relationship between environmental taxation, pollution abatement investments, and privatization of a partial state-owned hotel. We will consider one partial state-owned hotel and one for-profit hotel in a market competition defined by the following four-stage game: (i) the government decides the level of privatization of the partial state-owned hotel; (ii) a welfare-maximizing regulator sets the emission tax; (iii) both hotels, simultaneously and independently, choose abatement pollution investments; (iv) both hotels, simultaneously and independently, select the number of rooms provided for renting to guests. One of the main results of the paper is that neither full privatization nor full nationalization is the best choice for the government, under the social welfare point of view.