Abstract
We study the choices of two types of maximizing Public Servants over how far to carry privatization of industries and in what order to privatize. Two stylizations of the Public Servant's objectives are considered, a Niskanen-style Bureaucrat who maximizes a surplus budget subject to the constraint of staying in office, and a Populist who maximizes popularity/consumer welfare subject to the constraint of a balanced budget. Other things being equal, the Bureaucrat will privatize the sector (firms) with the least market power and the largest subsidy first. The Populist will adopt the same policy, if the marginal costs of products in the private sectors are not too high with respect to the marginal utilities. If the marginal costs are too high, however, the Populist will privatize the sector with the largest market power first. We also show that privatization is easier and faster in less democratic societies.
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I thank John Ledyard, Kim Border, Morgan Kousser, Peter Ordeshook and Tom Palfrey for their advice and suggestions. I have also benefited from helpful criticism from Michael Alexeev, Kay-yut Chen, Peng Lian, Scott Page, Friedrich Schneider, Katerina Sherstyuk, and Langche Zeng. A special note of thanks goes to Ron Harstad for his encouragement and for suggesting key expositional improvements. Financial assistance from the Flight Projects Office of the Jet Propulsion Laboratory of NASA to the Program on Organization Design is greatly appreciated. Any remaining errors are my own.
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Chen, Y. The optimal choice of privatizing state-owned enterprises: A political economic model. Public Choice 86, 223–245 (1996). https://doi.org/10.1007/BF00136520
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DOI: https://doi.org/10.1007/BF00136520