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Journal of Applied Sciences

Year: 2013 | Volume: 13 | Issue: 8 | Page No.: 1358-1363
Research Article

Privatization and Statutory Surplus Policy in Public Enterprise at Free Entry

Chu-Chuan Hsu
Department of Marketing and Logistics Management, YuDa University, Taiwan
Chien-Shu Tsai
Department of International Business, Kao Yuan University, Taiwan
Chin-Shu Huang
Department of International Business, YuDa University, Taiwan
The State-owned Enterprise (SOE) has long been one of the government’s financing methods. Namely, it is obliged to submit its operating profit to the government. Thus, the abrupt full privatization of the SOE will jeopardize the government’s finance. Due to this, this study explored that whether there is any alternative to the privatization of the SOE if the government would like to keep its finance and social welfare maximization. Distinguishing from other preceding literature, the statutory surplus policy was incorporated into this privatization model. This study hypothesized a mixed oligopoly model in an open economy, exploring which is the best policy choice for the SOE, statutory surplus policy or privatization policy. Besides, this study compared the social welfare equilibrium under the following two respective industrial conditions: Entry barrier in the short run and free entry in the long run. The comparison indicated that when the government adopts the statutory surplus policy, the SOE will submit just a portion of the surplus rather than the entire one to the government. This is to maximize both the objectives of the government and the manager. Moreover, when it is under an open economy with free entry in the long run, the SOE should be partially privatized in order to achieve social welfare maximization. This finding differs from those in other previous studies. However, no matter with entry barrier in the short run or free entry in the long run, the privatization policy has no difference to the statutory surplus policy when the government aims at maximizing the social welfare.
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