Picture of wind turbine against blue sky

Open Access research with a real impact...

The Strathprints institutional repository is a digital archive of University of Strathclyde research outputs.

The Energy Systems Research Unit (ESRU) within Strathclyde's Department of Mechanical and Aerospace Engineering is producing Open Access research that can help society deploy and optimise renewable energy systems, such as wind turbine technology.

Explore wind turbine research in Strathprints

Explore all of Strathclyde's Open Access research content

Mixed duopoly, privatization and the shadow cost of public funds

De Feo, G. and Capuano, C. (2008) Mixed duopoly, privatization and the shadow cost of public funds. Discussion paper. Université Catholique de Louvain.

Full text not available in this repository. (Request a copy from the Strathclyde author)

Abstract

The purpose of this paper is to investigate the effect of privatization in a mixed duopoly, where a private firm complete in quantities with a welfare-maximizing public firm. We consider two inefficiencies of the public sector : a possible cost inefficiency and an allocative inefficiency due to the distortionary effect of taxation (shadow cost of public funds). Furthermore, we analyze the effect of privatization on the timing of competition by endogenezing the determiantion of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games using the model developed by Hamilton and Slutsky (1990). The latter is especially relevant for the analysis of privatization, given that results and policy prescription emerged in the literature crucially rely on the type of competition assumed. We show that privatization has generally the effect of shifting from Stackelberg to Cournot equilibrium and that, absent efficiency gains privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred.