IDEAS home Printed from https://ideas.repec.org/a/nea/journl/y2019i43p12-33.html
   My bibliography  Save this article

Mathematical Model of Unitary Enterprise Privatization in the Real Sector

Author

Listed:
  • Arkin, V.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia)

  • Slastnikov, A.

    (Central Economics and Mathematics Institute, Russian Academy of Sciences, Moscow, Russia)

Abstract

The paper describes a model, which allows setting and solving the optimization problem for the privatization process of a unitary enterprise. The model assumes the possibility to choose the moment of privatization, as well as the stochastic behavior of the enterprise's profits and its jump-change after privatization. The proposed scheme allows finding the optimal (in NPV criterion of the buyer) moment of privatization and the optimal (in budgetary effect criterion) privatization price. In the case when the profit before and after privatization is modeled by random processes of geometric Brownian motion, the explicit formulas are obtained for the optimal time of privatization and the optimal privatization price. We derive the conditions, under which the optimal scheme allows privatization, and study the dependencies of the optimal privatization time as well as the optimal privatization price on the tax burden and profit parameters (average growth rate and volatility) of the enterprise before and after privatization. It is shown that the dependence of both the optimal time of privatization and the optimal privatization price on the tax burden is essentially determined by a certain indicator characterizing the ratio between the expected profits of an enterprise before and after privatization (being invariant to the tax system).

Suggested Citation

  • Arkin, V. & Slastnikov, A., 2019. "Mathematical Model of Unitary Enterprise Privatization in the Real Sector," Journal of the New Economic Association, New Economic Association, vol. 43(3), pages 12-33.
    • Handle: RePEc:nea:journl:y:2019:i:43:p:12-33
    DOI: 10.31737/2221-2264-2019-43-3-1
    as

    Download full text from publisher

    File URL: http://www.econorus.org/repec/journl/2019-43-12-33r.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.31737/2221-2264-2019-43-3-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David E. M. Sappington & Joseph E. Stiglitz, 1987. "Privatization, information and incentives," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 6(4), pages 567-585.
    2. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 699-728, September.
    3. J. Anderson., 2004. "On Privatizing State Property," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
    4. Benninga, Simon & Helmantel, Mark & Sarig, Oded, 2005. "The timing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 75(1), pages 115-132, January.
    5. Gasmi, Farid & Maingard, Alexis & Noumba Um, Paul & Recuero Virto, Laura, 2011. "Empirical evidence on the impact of privatization of fixed-line operators on telecommunications performance - Comparing OECD, Latin American, and African countries," IDEI Working Papers 660, Institut d'Économie Industrielle (IDEI), Toulouse.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    7. Paul Cook & Yuichiro Uchida, 2008. "The Performance of Privatised Enterprises in Developing Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 44(9), pages 1342-1353.
    8. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
    9. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
    10. Katz Barbara G. & Owen Joel, 1993. "Privatization: Choosing the Optimal Time Path," Journal of Comparative Economics, Elsevier, vol. 17(4), pages 715-736, December.
    11. Walailuck Chavanasporn & Christian-Oliver Ewald, 2012. "Privatization of businesses and flexible investment: a real option approach," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 35(1), pages 75-89, May.
    12. Arkin Vadim & Arkina Svetlana & Slastnikov Alexander, 2003. "Investment Stimulation by a Depreciation Mechanism," EERC Working Paper Series 02-05e, EERC Research Network, Russia and CIS.
    13. Li, Shaomin & Ouyang, Ming & Zhou, Dongsheng, 2005. "Modeling privatization as a firm strategy in transition economies," Journal of Business Research, Elsevier, vol. 58(1), pages 37-44, January.
    14. Polterovich (Полтерович), Victor (Виктор), 2012. "Приватизация И Рациональная Структура Собственности. Часть 1. Приватизация: Проблема Эффективности [Privatization and the rational ownership structure. Part 1: privatization: the effeciency problem," MPRA Paper 64145, University Library of Munich, Germany.
    15. Chen, Chien-Hsun & Mai, Chao-Cheng & Liu, Yu-Lin & Mai, Shin-Ying, 2009. "Privatization and optimal share release in the Chinese banking industry," Economic Modelling, Elsevier, vol. 26(6), pages 1161-1171, November.
    16. Brada, Josef C. & Ma, Chia-Ying, 2007. "The optimal timing of initial public offerings in the course of privatization: Theory and an illustrative application," Economic Systems, Elsevier, vol. 31(2), pages 121-137, June.
    17. Katz, Barbara G. & Owen, Joel, 2000. "Choosing between Big-Bang and Gradualist Reforms: An Option Price Approach," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 95-107, March.
    18. Shapiro, C. & Willing, D.R., 1990. "Economic Rationales For The Scope Of Privatization," Papers 41, Princeton, Woodrow Wilson School - Discussion Paper.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Polterovich, Victor, 2012. "Приватизация И Рациональная Структура Собственности. Часть 1. Приватизация: Проблема Эффективности [Privatization and the rational ownership structure. Part 1: privatization: the effeciency problem," MPRA Paper 64371, University Library of Munich, Germany.
    2. Polterovich (Полтерович), Victor (Виктор), 2012. "Приватизация И Рациональная Структура Собственности. Часть 1. Приватизация: Проблема Эффективности [Privatization and the rational ownership structure. Part 1: privatization: the effeciency problem," MPRA Paper 64145, University Library of Munich, Germany.
    3. Polterovich, V., 2013. "On Control of the Ownership Structure," Journal of the New Economic Association, New Economic Association, vol. 20(4), pages 177-182.
    4. Polterovich, Victor, 2012. "Приватизация и рациональная структура собственности (Privatizatsiya i ratsional’naya struktura sobstvennosti) [Privatization and the Rational Ownership Structure]," MPRA Paper 41069, University Library of Munich, Germany.
    5. Carlos Suarez, 2021. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," IREA Working Papers 202102, University of Barcelona, Research Institute of Applied Economics, revised Jan 2021.
    6. A. Abramov & A. Radygin & M. Chernova & R. Entov., 2017. "State ownership and efficiency characteristics," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
    7. Shibata, Takashi & Nishihara, Michi, 2011. "Interactions between investment timing and management effort under asymmetric information: Costs and benefits of privatized firms," European Journal of Operational Research, Elsevier, vol. 215(3), pages 688-696, December.
    8. Schuster, Philipp & Schmitt, Carina & Traub, Stefan, 2013. "The retreat of the state from entrepreneurial activities: A convergence analysis for OECD countries, 1980–2007," European Journal of Political Economy, Elsevier, vol. 32(C), pages 95-112.
    9. Rim Lahmandi-Ayed & Didier Laussel, 2020. "A voting model of privatization," Working Papers hal-02504990, HAL.
    10. Suarez, Carlos, 2022. "Private management and strategic bidding behavior in electricity markets: Evidence from Colombia," Energy Economics, Elsevier, vol. 111(C).
    11. Pennings, Enrico, 2008. "Privatization of real options," Journal of Comparative Economics, Elsevier, vol. 36(3), pages 489-497, September.
    12. Eduardo Saavedra, "undated". "Alternative Institutional Arrangements in Network Utilities: An Incomplete Contracting Approach," ILADES-UAH Working Papers inv116, Universidad Alberto Hurtado/School of Economics and Business.
    13. Boardman, Anthony E. & Vining, Aidan R. & Weimer, David L., 2016. "The long-run effects of privatization on productivity: Evidence from Canada," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1001-1017.
    14. Lahmandi-Ayed, Rim & Laussel, Didier, 2022. "When do privatizations have popular support? A voting model," Journal of Mathematical Economics, Elsevier, vol. 100(C).
    15. Radygin, Alexander & Entov, Revold, 2013. ""Fundamental" theorem of privatization: ideology, evolution, practice," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 7-45, December.
    16. Edgardo Cayón, 2014. "The Effects of Contagion During the Global Financial Crisis in Government-Regulated and Sponsored Assets in Emerging Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 3-2014, January-A.
    17. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
    18. Edgardo Cayón, 2014. "The Effects of Contagion During the Global Financial Crisis in Government-Regulated and Sponsored Assets in Emerging Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 30, July-Dece.
    19. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.
    20. Hau, Harald, 1998. "Privatization under political interference: Evidence from Eastern Germany," European Economic Review, Elsevier, vol. 42(7), pages 1177-1201, July.

    More about this item

    Keywords

    privatization; unitary enterprises; budgetary effect; uncertainty; time of privatization; privatization price;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nea:journl:y:2019:i:43:p:12-33. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Alexey Tcharykov (email available below). General contact details of provider: https://edirc.repec.org/data/nearuea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.