When will privatization maximize the government's net revenues?

Leon Taylor ()

MPRA Paper from University Library of Munich, Germany

Abstract: Governments often sell assets for revenues or economic efficiency. When the capital is durable, potential buyers may wait for the government to cut its price, since they know that as a monopoly it will initially price above marginal cost. Rather than sell, the government could continue to lease the capital to the public – that is, to sell the services that the capital generates, in exchange for a tax payment. Comparative statics indicate that a government maximizing its net revenues may prefer leasing to selling for a large inventory of capital-intensive products that buyers view as vital. For example, a socialist government contemplating a transition to markets must consider the impact on its own revenues. If its major assets are capital-intensive, the impact may be negative.

Keywords: Durable-goods monopoly; privatization; leasing versus selling; government revenues; transition economy (search for similar items in EconPapers)
JEL-codes: H27 (search for similar items in EconPapers)
Date: 2016-02-15
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