Privatization, unemployment, and welfare in the harris-todaro model with a mixed duopoly

Abstract

This paper explores the unemployment and welfare effects of privatization through the Harris-Todaro model with a mixed duopoly. Our approach is more generalized than the existing literature. When capital is sector-specific (i. e., it is in the short run), an increase in the degree of partial privatization will raise the unemployment rate, but the change of social welfare is conditional on the market share of the public firm and the relative degree of partial privatization. When capital is sector-mobile (i. e., it is in the long run), an increase in the degree of partial privatization will reduce the unemployment rate, but the change of social welfare is also dependent on the market share of the public firm and the relative degree of partial privatization. Our results capture the fact that the public firm and the private firm usually coexist in a competitive environment in the real world.