This paper proposes a privatization model with Nash bargaining to analyze the determination of privatization and its distributional effects. We find that the optimal degree of privatization hinges on the post-privatization employment. The result of welfare analysis reveals that privatization is beneficial to both consumers and the stockholders of the privatized firm, if the employment is unchanged after privatization. However, if the employment is reduced through negotiation, consumer surplus will decrease, while the profit of the privatized firm will increase. The increment of profit in the latter circumstance depends on the labor union's care to laid-off employees. The net impact of privatization on employee depends on the effect on workers' productivity, the rent effect and government's threatening effect in the process of negotiation.
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