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Optimal Privatization and Uniform Subsidy Policies: A Synthesis

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  • Lin, Ming Hsin
  • Matsumura, Toshihiro

Abstract

The privatization neutrality theorem states that the share of public ownership in an enterprise does not affect welfare (i.e., any degree of privatization is optimal) under optimal uniform tax-subsidy policy. We revisit this neutrality result. First, we investigate the case in which the private enterprise is domestic. We show that this neutrality result does not hold unless public and private enterprises have the same cost function. In addition, we show that the optimal degree of privatization is zero regardless whether the public or private firm has a cost advantage under the optimal subsidy policy. Next, we investigate a case in which the private enterprise is owned by both domestic and foreign investors. We show that the optimal degree of privatization is never zero, and thus, the neutrality result does not hold even when there is no cost difference between public and private enterprises.

Suggested Citation

  • Lin, Ming Hsin & Matsumura, Toshihiro, 2017. "Optimal Privatization and Uniform Subsidy Policies: A Synthesis," MPRA Paper 77285, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:77285
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    References listed on IDEAS

    as
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    Cited by:

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    More about this item

    Keywords

    mixed oligopoly; mixed ownership; subsidy policy; partial privatization; optimal degree of privatization;
    All these keywords.

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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