Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2002-12-02 Revision-Date: 2008-01-31 Number: 02-118/1 Author-Name: Josse Delfgaauw Author-Email: email@example.com Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam Author-Name: Robert A.J. Dur Author-Email: firstname.lastname@example.org Author-Workplace-Name: Faculty of Economics, Erasmus Universiteit Rotterdam Title: From Public Monopsony to Competitive Market: More Efficiency but Higher Prices Abstract: This paper examines the consequences of creating a fully competitive market in a sector previously dominated by a cost-minimizing public firm. Workers in the economy are heterogeneous in their intrinsic motivation to work in the sector. In line with empirical findings, our model implies that firms in the competitive market reach higher productivity and employ less workers than the public firm. Allocative efficiency therefore increases. Nevertheless, prices of the sector's output rise as competition between private firms for the best motivated workers leads to higher wage cost than under the public monopsony. Political support for liberalization may therefore be limited.
This discussion paper has resulted in a publication in the Oxford Economic Papers. (2009, vol. 63, issue 3, pp. 586-602.) Classification-JEL: H4; J3; J4 Keywords: liberalisation; monopsony power; incentive wages; intrinsic motivation File-Url: http://papers.tinbergen.nl/02118.pdf File-Format: application/pdf File-Size: 261277 bytes Handle: RePEc:tin:wpaper:20020118