AltInst: An Efficient Privatization Mechanism

     BY: NEJAT ANBARCI
           Florida International University
         MEHMET E. KARAASLAN
           Alfred University

         Contact: Nejat Anbarci
         E-Mail: MAILTO:anbarcin@fiu.edu
         Postal: Florida International University, Department of
                   Economics, College of Arts & Sciences,
                   University Park, DM 320B, Miami, Florida 33199
                   USA
         Phone: (305) 348 2735
         Fax: (305) 348 1524
         Co-Auth: MAILTO:karaasla@bigvax.alfred.edu

     We consider the privatization of State-Owned Enterprises
     (SOEs) of which markets can be opened to competition once
     privatization takes place and competitors can compete
     successfully against them in a few years. The currently
     used "Revenue Maximization (RM)" scheme maximizes the
     government revenue from privatization but does not provide
     incentives for the privatized SOE to charge a price lower
     than the monopoly price until competition arises. We
     propose the "Welfare Maximization (WM)" scheme, which
     induces the privatized SOE to charge a competitive price
     without resorting to regulation. Also, WM provides greater
     incentives for post-privatization cost reduction.

     JEL Classification: L33, P21

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614

[To drop AltInst, tell: majordomo@cco.caltech.edu to: unsubscribe altinst]
Received on Wed May 13 17:29:52 1998