WELFARE ANALYSIS OF PRIVATIZATION IN A MIXED MARKET WITH BARGAINING

Lily Jiang

Contemporary Economic Policy, 2006, vol. 24, issue 3, 395-406

Abstract: The author analyzes the welfare effects of privatization in a mixed duopoly model in which the wage rate for the privatized firm is determined by Nash bargaining beforehand. The evaluations are based on three‐stage privatization frameworks respectively under two regimes: Cournot competition and a public firm acting as a Stackelberg leader. The author finds that the optimal degrees of privatization from the viewpoint of social welfare may be different for various types of competition. The article also shows that even optimal privatization set by a welfare‐maximization government may not guarantee welfare improvement, owing to the interference of wage bargaining. (JEL D60, D78, L32, L33)

Date: 2006
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