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Can cost asymmetry be a rationale for privatisation?

Mukherjee, Arijit; Sinha, Uday Bhanu


Professor of Industrial Economics

Uday Bhanu Sinha


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.


Mukherjee, A., & Sinha, U. B. (2014). Can cost asymmetry be a rationale for privatisation?. International Review of Economics and Finance, 29, 497-503. doi:10.1016/j.iref.2013.07.010

Journal Article Type Article
Acceptance Date Jul 31, 2013
Online Publication Date Aug 13, 2013
Publication Date Jan 31, 2014
Deposit Date Dec 10, 2018
Journal International Review of Economics & Finance
Print ISSN 1059-0560
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 29
Pages 497-503
Keywords Economics and Econometrics; Finance
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