Privatization in Oligopoly: The Impact of the Shadow Cost of Public Funds
AbstractThe 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.
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Bibliographic InfoArticle provided by SIE - Societa' Italiana degli Economisti (I) in its journal Rivista Italiana degli Economisti.
Volume (Year): 15 (2010)
Issue (Month): 2 (August)
Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
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- Matsumura, Toshihiro & Ogawa, Akira, 2014. "Inefficient but robust public leadership," MPRA Paper 56539, University Library of Munich, Germany.
- Choi, Kangsik, 2013. "Unionized Mixed Oligopoly and Privatization with Excess Burden of Taxation," MPRA Paper 51156, University Library of Munich, Germany.
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