Privatization, Efficiency Gap, and Subsidization with Excess Taxation Burden
AbstractIt is well recognized that the impact of subsidization/taxation policies hinges on the market structure to which they apply. We show that different degree of efficiency gain sharply changes the comparisons of optimal subsidy, total outputs and social welfare between mixed and private duopoly. What is more, for an imposition of an optimal subsidy, welfare may increase, decrease, or remain unchanged with privatization, which depends on the level of the cost efficiency gap and the taxation burden. However, it may be possible to raise welfare through privatization as long as the efficiency gain prevails or no excess taxation burden exists. Government sets higher subsidy to stimulate firms' production if the value of cost-differential is assured.
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Bibliographic InfoArticle provided by Hitotsubashi University in its journal Hitotsubashi Journal of Economics.
Volume (Year): 52 (2011)
Issue (Month): 1 (June)
Privatization; Mixed Duopoly; Cost Efficiency Gap; Subsidization; Excess Taxation Burden;
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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