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Privatization in oligopoly : the impact of the shadow cost of public funds

Capuano, Carlo and De Feo, Giuseppe (2010) Privatization in oligopoly : the impact of the shadow cost of public funds. Rivista Italiana degli Economisti, 15 (2). pp. 175-208. ISSN 1593-8662

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    Abstract

    The aim of this paper is to investigate the welfare effect of privatization in oligopoly when the government takes into account the distortionary effect of raising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the firms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent efficiency gains, privatization never increases welfare. Moreover, even when large efficiency gains are realized, an inefficient public firm may be preferred.

    Item type: Article
    ID code: 28116
    Notes: Also available as a monograph: http://strathprints.strath.ac.uk/7780/ This is a variant record V: 7780
    Keywords: mixed oligopoly, privatization, endogenous timing, distortionary taxes, Political science (General)
    Subjects: Political Science > Political science (General)
    Department: Strathclyde Business School > Economics
    Related URLs:
    Depositing user: Miss Jenna Wright
    Date Deposited: 13 Oct 2010 16:26
    Last modified: 25 Jul 2013 11:35
    URI: http://strathprints.strath.ac.uk/id/eprint/28116

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