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Cover of: Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap
Yoshihiro Tomaru, Leonard F. S. Wang

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

Section: Articles
Volume 174 (2018) / Issue 4, pp. 689-706 (18)
Published 09.08.2018
DOI 10.1628/jite-2018-0005
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  • 10.1628/jite-2018-0005
Summary
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.