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Privatization in Oligopoly: The Impact of the Shadow Cost of Public Funds

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Author Info

  • Carlo CAPUANO

    ()
    (Universita' di Napoli "Federico II")

  • Giuseppe DE FEO

    ()
    (University of Strathclyde, Glasgow, Scotland (UK))

Abstract

The 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 Info

Article provided by SIE - Societa' Italiana degli Economisti (I) in its journal Rivista Italiana degli Economisti.

Volume (Year): 15 (2010)
Issue (Month): 2 (August)
Pages: 175-208

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Handle: RePEc:rie:review:v:15:y:2010:i:2:n:1

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Related research

Keywords: Distortionary taxes; Endogenous Timing; Mixed oligopoly; Privatization;

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Cited by:
  1. Choi, Kangsik, 2013. "Unionized Mixed Oligopoly and Privatization with Excess Burden of Taxation," MPRA Paper 51156, University Library of Munich, Germany.
  2. Matsumura, Toshihiro & Ogawa, Akira, 2014. "Inefficient but robust public leadership," MPRA Paper 56539, University Library of Munich, Germany.

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