Privatization and Statutory Surplus Policy in Public Enterprise at Free Entry

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. 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.