De Feo, G. and Capuano, C. (2006) Mixed duopoly, privatization and the shadow costs of public funds. Discussion paper. Université Catholique de Louvain.
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The purpose of this article is to investigate how the introduction of the shadow cost of public funds in the utilitarian measure of the economywide welfare affects the behavior of a welfare maximizer public firm in a mixed duopoly. We prove that when firms play simultaneously, the mixed-Nash equilibrium can dominate any Cournot equilibria implemented after a privatization, with or without efficiency gains. This can be true both in terms of welfare and of public firm's profit. When we consider endogenous timing, we show that either mixed- Nash, private leadership or both Stackelberg equilibria can result as subgameperfect Nash equilibria (SPNE). As a consequence, the sustainability of sequential equilibria enlarges the subspace of parameters such that the market performance with an inefficient public firm is better than the one implemented after a full-efficient privatization. Absent efficiency gains, privatization always lowers welfare.
|Item type:||Monograph (Discussion paper)|
|Keywords:||mixed oligopoly, privatization, endogenous timing, distortionary taxes, Commerce, Economic Theory|
|Subjects:||Social Sciences > Commerce
Social Sciences > Economic Theory
|Department:||Strathclyde Business School > Economics|
|Depositing user:||Strathprints Administrator|
|Date Deposited:||26 Mar 2009 14:32|
|Last modified:||29 Apr 2016 13:42|