Optimal share of privatisation in a public monopoly with unionised workers
Optimal share of privatisation in a public monopoly with unionised workers

Summary/Abstract: In a monopoly industry with firm-union wage bargaining, we show that it is optimal to privatise a share of the public firm. The optimal privatisation share increases with the union’s higher bargaining power and/or wage-orientation and, when the latter is large, full privatisation becomes socially optimal. Interestingly, the optimal privatisation share is the highest (lowest) when the government attributes a medium-low (low and high) weight to the workers’ welfare, notably when the union’s bargaining power and/or wage-orientation are sufficiently high. This may be counterintuitive because it implies that left-wing governments (with a weak and moderate union) tend to privatise more greatly.

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