Abstract
This paper uses a dynamic general equilibrium model to investigate the welfare and allocation impacts of an infrastructure privatization policy. The economy that is being modeled is composed of two types of capital, one inherently private and another with characteristics of public goods, denominated infrastructure, which is offered by both the public and private sectors. Assuming that this second type of capital generates positive external effects, the public supply of infrastructure can improve the decentralized allocation of this economy. However, assuming that the taxes that finance this supply and other public expenditures distort the decisions of the agents, depressing the level of welfare, the privatization of the infrastructure can be a socially satisfactory policy. The simulations indicate that the welfare gains of an infrastructure privatization policy depend heavily on the degree of contribution of the private versus the public supply in generating positive external effects.
Keywords
Privatization; Infrastructure; Welfare; Dynamic Recursive Model
