The Welfare and Political Economy Dimensions of Private Versus State Enterprise

We revisit the theoretical debate concerning the merits of privatization by decomposing the welfare effect of transferring an enterprise from public to private ownership. A range of effects is considered including overproduction, subsidy valuation, redistribution, ownership and regulatory effects. The potential gains/losses from privatization are examined by considering the initial conditions facing enterprises under public ownership (whether technically and/or economically efficient) and a range of post-privatization market structures (whether monopoly, oligopoly or Walrasian)