| Abstract: | We consider a government that wishes to choose the optimal time path of privatization. The government is concerned with maximizing output over some specified period while taking into account (1) the level of unemployment that will be attained as the end of that period, (2) the improvement in labor productivity of workers in the nationalized enterprises as a consequence of growing competition from privatized firms, and (3) the reemployment rate of the redundant workers displaced as their firms become privatized. We present a model exhibiting these features and derive the optimal policy that characterizes the rate of privatization within the period. When all of the elements noted above are present, we show it is never optimal to privatize instantaneously. We also show the relationship of the optimal rate of transition to the underlying objectives of the government. J. Comp. Econom., December 1993, 17(4), pp. 715-736. Stern School of Business, New York University, New York, New York 10012. |
