Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap

Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap

This study considers subsidization and privatization policies in a mixed duopoly with one public firm and one private firm. The special feature of this study is that privatization can reduce the cost gap between the firms. We show that the optimal subsidy yields the efficient production allocation i...

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Veröffentlicht in:Journal of institutional and theoretical economics 2018-12, Vol.174 (4), p.689-706
Hauptverfasser: Tomaru, Yoshihiro, Wang, Leonard F. S.
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Sprache:eng
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Duopoly
Economic models
Privatization
Studies
Subsidies
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description This study considers subsidization and privatization policies in a mixed duopoly with one public firm and one private firm. The special feature of this study is that privatization can reduce the cost gap between the firms. We show that the optimal subsidy yields the efficient production allocation if privatization is not implemented. However, once the public firm is privatized, it overproduces under the optimal subsidy. Moreover, partial privatization is optimal unless privatization significantly reduces the cost gap.
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subjects Duopoly
Economic models
Privatization
Studies
Subsidies
title Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap
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