THE OPTIMAL CHOICE OF PRIVATIZING STATE-OWNED ENTERPRISES - A POLITICAL ECONOMIC-MODEL

We study the choices of two types of maximizing Public Servants over h ow far to carry privatization of industries and in what order to priva tize. Two stylizations of the Public Servant's objectives are consider ed, 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 bu dget. Other things being equal, the Bureaucrat will privatize the sect or (firms) with the least market power and the largest subsidy first. The Populist will adopt the same policy, if the marginal costs of prod ucts in the private sectors are not too high with respect to the margi nal utilities. If the marginal costs are too high, however, the Populi st will privatize the sector with the largest market power first. We a lso show that privatization is easier and faster in less democratic so cieties.