Can cost asymmetry be a rationale for privatisation?

Mukherjee, Arijit; Sinha, Uday Bhanu

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.

Citation

Mukherjee, A., & Sinha, U. B. (2014). Can cost asymmetry be a rationale for privatisation?. International Review of Economics and Finance, 29, 497-503. https://doi.org/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
• DOI: https://doi.org/10.1016/j.iref.2013.07.010
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/1394602
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S1059056013000737?via%3Dihub