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Partial privatization and government preference
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Orientador(es)
Resumo(s)
Studies of mixed oligopoly models have been increasingly popular in recent years. We can say that the
main concerns of the privatization studies are the welfare effect and the method of privatization.
Ferreira and Ferreira (2014) analysed the relationship between the privatization of a public firm and
government preferences for tax revenue in a duopoly model, by assuming that the government payoff
is given by a weighted sum of tax revenue and the sum of consumer and producer surplus.
In this paper, we study the relationship between the partial privatization of the public firm and the
government preferences for tax revenue. We consider a duopoly model with one semi-public firm and
one private firm competing à la Cournot, that is choosing their outputs simultaneously. The private
firm aims to maximize its own profit and we the objective function of the semi-public firm is a
weighted sum between its own profit and the sum of consumer and producer surplus.
The government imposes a specific tax on the production, and, furthermore, it chooses the level of
privatization of the semi-public firm. The government payoff is the weighted sum between the sum of
consumer and producer surplus and the tariff revenue.
The timing of the game is as follows. In the first stage, the government sets the tax rate and the level
of privatization of the semi-public firm. In the second stage, each firm simultaneously chooses its
output to the market.
We compute the outputs at equilibrium and we show that full privatization will decrease (i) the
specific tax rate; (ii) the aggregate output in the market; and (iii) the government’s payoff. In addition,
full privatization will increase the profits of both firms.
Furthermore, we show that as the government preference for the tax revenue becomes large, (i) the
optimal tax rate increases, (ii) the output of both firms decrease; and (iii) the government payoff
decreases.
This paper contributes to the framework of partial privatization in a market with a specific tax on the
production.
Descrição
Palavras-chave
Industrial organization Game theory Partial privatization
Contexto Educativo
Citação
Editora
University of Primorska Press