SFB 303 Discussion Paper No. A - 116
Author: Bös, Dieter
Title: Privatization of Public Firms: A Government-Trade Union-Private Shareholder Cooperative Game
Abstract: This paper presents a positive theory of privatization. No welfare arguments enter the analysis. The
government is conceived as an institution which wants to draw some money from selling its property and so
willingly cooperates with private shareholders who also are interested in the value of the firm.The antagonist are
the trade unions. They are interested in the firm's keeping jobs, even if this leads to more inefficiency in
production and less profit. They are, however, willing to agree to at least some firing of employees if the
remaining employees get some share of an increased profit and if there is some short of "social net" for the
Therefore, when deciding on privatization, the government enters into negotiations with the trade
unions about some plan of employees' shares some financial compensation for the dismissed.
In the course of the
negotiations the players have to anticipate how the firm will adjust to the compromise the government and the
trade unions have made. This adjustment can be described as a cooperative game. The players of this game are
the (private and public) shareholders and the representatives of the trade unions in the firm. The decision making
in the firm as a two-person cooperative game is modeled similar to Aoki (1980, 1982).
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