Can cost asymmetry be a rationale for privatisation?

Arijit Mukherjee and Uday Sinha

International Review of Economics & Finance, 2014, vol. 29, issue C, 497-503

Abstract: Cost asymmetries between the public and the private firms create a rationale for privatising the public firms. We show that this argument is restrictive, since it does not allow for other ways of reducing production inefficiency, which creates the motivation for privatisation. If the profit maximising private firm is technologically superior to that of the welfare maximising public firm, the society and the private firm benefit from technology licensing. Under technology licensing, both the equilibrium output of the private firm and the equilibrium degree of privatisation are zero. However, if cost asymmetry cannot be bridged by technology licensing due to costly and/or imperfect technology transfer, the argument in favour of privatisation remains.

Keywords: Privatisation; Technology licensing; Welfare (search for similar items in EconPapers)
JEL-codes: H42 H44 L13 L24 L33 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:29:y:2014:i:c:p:497-503

DOI: 10.1016/j.iref.2013.07.010

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