Mathematical Model of Unitary Enterprise Privatization in the Real Sector

Vadim Arkin and Alexander Slastnikov ()

Journal of the New Economic Association, 2019, vol. 43, issue 3, 12-33

Abstract: The paper describes a model, which allows setting and solving the optimization problem for the privatization process of a unitary enterprise. The model assumes the possibility to choose the moment of privatization, as well as the stochastic behavior of the enterprise's profits and its jump-change after privatization. The proposed scheme allows finding the optimal (in NPV criterion of the buyer) moment of privatization and the optimal (in budgetary effect criterion) privatization price. In the case when the profit before and after privatization is modeled by random processes of geometric Brownian motion, the explicit formulas are obtained for the optimal time of privatization and the optimal privatization price. We derive the conditions, under which the optimal scheme allows privatization, and study the dependencies of the optimal privatization time as well as the optimal privatization price on the tax burden and profit parameters (average growth rate and volatility) of the enterprise before and after privatization. It is shown that the dependence of both the optimal time of privatization and the optimal privatization price on the tax burden is essentially determined by a certain indicator characterizing the ratio between the expected profits of an enterprise before and after privatization (being invariant to the tax system).

Keywords: privatization; unitary enterprises; budgetary effect; uncertainty; time of privatization; privatization price (search for similar items in EconPapers)
JEL-codes: C61 D81 G38 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2019:i:43:p:12-33

DOI: 10.31737/2221-2264-2019-43-3-1

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