Welfare Effects of Privatizing Public Enterprises

  • Dieter Bös
Conference paper


If a public firm is privatized, most probably the productive efficiency of the firm will increase. The efficiency gains will improve welfare. However, the privatized firm will tend to increase profit. Then a welfare optimum is achieved only if the firm operates in a perfectly competitive environment. Otherwise the profit maximization reduces welfare. However, the profit can be redistributed among consumers as dividend payments which increase incomes and thereby increase welfare. Part of the increased profit, moreover, may remain in the public budget and be used to increase government expenditures. And the revenue from selling the shares will also be spent as government expenditures. The increasing expenditures will increase the welfare. Given the different welfare effects of privatization: how many shares of a public firm shall be sold and what are the economic consequences of an optimum privatization?


Public Expenditure Privatize Firm Welfare Effect Efficiency Gain Public Firm 
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Copyright information

© Springer-Verlag Berlin Heidelberg 1988

Authors and Affiliations

  • Dieter Bös
    • 1
  1. 1.BonnWest Germany

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