A voting model of privatization

Rim Lahmandi-Ayed and Didier Laussel ()

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Abstract: We consider a general equilibrium model with vertical preferences, where workers and consumers are differentiated respectively by their sensitivity to effort and their intensity of preference for quality. We consider a public monopoly, i.e. which is owned equally by all individuals. The question is under which conditions the firm will be privatized and at which rate/price. The decisions are taken through majority vote in a plurality system. When the firm is controlled by the State, the price is determined through a vote among all the population. Otherwise, the price is the one which maximizes the profit. We prove that, under some conditions on the dispersion of consumers relative to workers, privatization may emerge as a possible choice of the majority, even if no hypothesis is made on the efficiency of a private management relative to a public one.

Keywords: democracy; general equilibrium; privatization; vertical preferences; public monopoly JEL codes: D4; majority vote; D5; L2 (search for similar items in EconPapers)
Date: 2020-05-11
Note: View the original document on HAL open archive server: https://hal.science/hal-02504990v2
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