Abstract
We show that in the presence of cross-ownership associated with an improvement of production inefficiency of the public firm, the optimal privatization policy is full privatization whether budget constraints are imposed on the public firm. For reaching a higher level of social welfare, the government does not need to impose budget constraints on the public firm when the fixed cost is low.
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Notes
See De Fraja and Delbono (1989) for the specification of the public firm in mixed oligopoly and De Fraja and Delbono (1990) for the general review of mixed oligopoly models. For literature on union bargaining in mixed oligopoly see De Fraja (1993), Ishida and Matsushima (2009) and Choi (2011) for examples.
In Lin and Matsumura (2012), a similar specification is used for the case of foreign ownership.
The case of μ > 0 is considered only. If μ = 0, then the outputs and the other results will be all the same as the case of no imposition of budget constraint.
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Acknowledgements
We would like to thank the Editor and three anonymous referees for helpful comments and suggestions. The work described in this paper was supported by the National Science Council of Taiwan under Grant NSC 99-2410-H-390-006-MY3.
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Wang, L.F.S., Hsu, C.C. & Lee, J.Y. Do Partial Cross Ownership and Budget Constraints Matter for Privatization Policy?. J Ind Compet Trade 14, 519–529 (2014). https://doi.org/10.1007/s10842-013-0174-9
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DOI: https://doi.org/10.1007/s10842-013-0174-9