Abstract
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?
I gratefully acknowledge the comments of Wolfgang Peters, Ray Rees, Wolfram Richter, the participants in the Neresheim seminar and an anonymous referee.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Atkinson, A. B., and Stiglitz, J. E. (1980): Lectures on Public Economics. London etc.: McGraw-Hill.
Beesley, M. E. (1981): “Liberalisation of the Use of British Telecommunications Network.” Report to the Secretary of State, Department of Industry, London.
Bös, D. (1985): “Public Sector Pricing.” In Handbook of Public Economics, Vol. I, edited by A. Auerbach and M. Feldstein. Amsterdam etc.: North-Holland, pp. 129–211.
Bös, D. (1986a): Public Enterprise Economics. Amsterdam etc.: North-Holland. (Advanced Textbooks in Economics, 23.)
Bös, D. (1986b): “A Theory of the Privatization of Public Enterprises.” In Weifare Economics of the Second Best, edited by D. Bös and Ch. Seidl. Vienna etc.: Springer, pp. 17–40. (Journal of Economics/Zeitschrift für Nationalökonomie, Supplementum 5.)
Bös, D. (1987): “Privatization of Public Enterprises.” European Economic Review 31: 352–360.
Bös, D., and Peters, W. (1987): “A Normative Approach to Privatization.” Mimeo. Bonn: University of Bonn.
Boiteux, M. (1956, 1971 ): “Sur la gestion des monopoles astreints à l’équilibre budgétaire.” Econometrica 24: 22–40. English edition: “On the Management of Public Monopolies Subject to Budgetary Constraints.” Journal of Economic Theory 3: 219–240.
Drèze, J. H. (1964): “Some Postwar Contributions of French Economists to Theory and Public Policy with Special Emphasis on Problems of Resource Allocation.” American Economic Review 54, No. 4, Part 2 (Supplement): 1–64.
Drèze, J. H. (1984): “Second-best Analysis with Markets in Disequilibrium: Public Sector Pricing in a Keynesian Regime.” In The Performance of Public Enterprises, edited by M. Marchand, P. Pestieau, and H. Tulkens. Amsterdam etc.: North-Holland, pp. 45–79.
Drèze, J. H., and Marchand, M. (1976): “Pricing, Spending, and Gambling Rules for Non-profit Organizations.” In Public and Urban Economics, Essays in Honor of William S. Vickrey, edited by R. E. Grieson. Lexington, Mass.: Heath, pp. 59 - 89.
Feldstein, M. S. (1972a): “Distributional Equity and the Optimal Structure of Public Prices.” American Economic Review 62: 32–36. (Corrected version of p. 33, footnote 7: American Economic Review 62: 763.)
Feldstein, M. S. (1972b): “Equity and Efficiency in Public Sector Pricing: The Optimal Two-part Tariff.” Quarterly Journal of Economics 86: 175 - 187.
Feldstein, M. S. (1972c): “The Pricing of Public Intermediate Goods.” Journal of Public Economics 1: 45–72.
Hagen, K. P. (1979): “Optimal Pricing in Public Firms in an Imperfect Market Economy.” Scandinavian Journal of Economics 81: 475–493.
Marchand, M., Pestieau, P., and Weymark, J. A. (1982): “Discount Rates for Public Enterprises in the Presence of Alternative Financial Constraints.” In Public Production, edited by D. Bös, R. A. Musgrave, and J. Wiseman. Vienna etc.: Springer, pp. 27–50. (Zeitschrift für Nationalökonomie/Journal of Economics, Supplementum 2.)
Marchand, M., Pestieau, P., and Tulkens, H. (1984): “The Performance of Public Enterprises: Normative, Positive and Empirical Issues.” In The Performance of Public Enterprises, edited by M. Marchand, P. Pestieau, and H. Tulkens. Amsterdam etc.: North-Holland, pp. 3–42.
Panik, M. J. (1976): Classical Optimization: Foundations and Extensions. Amsterdam etc.: North-Holland.
Peters, W. (1986): “Cost-Inefficiency and Second-best Pricing.” Mimeo. Bonn: University of Bonn.
Sheshinski, E. (1986): “Positive Second-best Theory.” In Handbook of Mathematical Economics, Vol. III, edited by K. J. Arrow and M. D. Intriligator. Amsterdam etc.: North-Holland, pp. 1251–1280.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 1988 Springer-Verlag Berlin Heidelberg
About this paper
Cite this paper
Bös, D. (1988). Welfare Effects of Privatizing Public Enterprises. In: Bös, D., Rose, M., Seidl, C. (eds) Welfare and Efficiency in Public Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-73370-3_13
Download citation
DOI: https://doi.org/10.1007/978-3-642-73370-3_13
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-73372-7
Online ISBN: 978-3-642-73370-3
eBook Packages: Springer Book Archive