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Keywords:

  • mixed duopoly;
  • public enterprise;
  • research and development and partial privatization
  • L13;
  • L32;
  • L33;
  • L52

ABSTRACT

This paper is the first to examine the incentive for partial privatization in a mixed duopoly with R&D rivalry. We show that because mixed duopolies engage in more R&D, the optimal extent of privatization is unambiguously reduced. Yet, this reduction is often very modest. Adopting the extent of privatization that would be optimal if one ignored the R&D rivalry routinely results in greater welfare than retaining a fully public firm and ignoring partial privatization. Only when R&D has an extremely low cost would it be preferable to ignore partial privatization.