When do privatizations have popular support? A voting model

Abstract

We consider a general equilibrium model with vertical preferences, where workers and consumers are differentiated respectively by their sensitivity to effort and their intensity of preference for quality. We consider a public monopoly, i.e. which is owned equally by all individuals. The question is under which conditions the firm will be privatized and at which rate/price. The decisions are taken through majority vote in a plurality system. When the firm is controlled by the State, the price is determined through a vote among all the population. Otherwise, the price is the one which maximizes the profit. We prove that, when the maximum disutility of working in the firm is higher than the maximum utility of consuming its output, privatization may emerge as a possible choice of the majority, even if no hypothesis is made on the efficiency of a private management relative to a public one.