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PARTIAL PRIVATIZATION IN A MIXED DUOPOLY WITH AN R&D RIVALRY

Authors


J.S. Heywood, Department of Economics, University of Wisconsin-Milwaukee, P.O. Box 413, Milwaukee, WI 53201, USA. Email: heywood@uwm.edu. The authors thank the Scientific Research Foundation for Returned Overseas Chinese Scholars for Support.

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.

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