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Optimal trade, industrial, and privatization policies in a mixed duopoly with strategic managerial incentives

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  • Winston Chang

Abstract

This paper examines optimal trade, industrial, and privatization policies in a home-market model of mixed international duopoly with strategic managerial incentives. Under linear demand and constant marginal costs, the optimal degree of privatization is shown to depend crucially on cost and demand parameters and on the availability of strategic trade and industrial policies. If both firms are equally efficient, optimal trade and industrial policies drive out the foreign firm and the privatization policy loses its effect on national welfare; however, if the home firm is less efficient, then full privatization combined with an import tariff and a production subsidy is optimal for the home country, while an export subsidy is optimal for the foreign country. If trade and industrial policies are unavailable and if both firms are equally efficient, full state-ownership, which drives out the foreign firm, becomes optimal; however, if the home firm is less efficient, only partial privatization is optimal, The state-ownership share is increased if either the market size grows, the home firm's efficiency increases, or the foreign firm's efficiency decreases. Further, the paper demonstrates the potential conflict between privatization and trade liberalization policies.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of International Trade & Economic Development.

Volume (Year): 16 (2007)
Issue (Month): 1 ()
Pages: 31-52

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Handle: RePEc:taf:jitecd:v:16:y:2007:i:1:p:31-52

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Related research

Keywords: Mixed duopoly; strategic incentives; trade and privatization policy;

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Cited by:
  1. Mukherjee, Arijit & Sinha, Uday Bhanu, 2014. "Can cost asymmetry be a rationale for privatisation?," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 497-503.
  2. repec:ebl:ecbull:v:6:y:2008:i:37:p:1-7 is not listed on IDEAS
  3. Arijit Mukherjee & Kullapat Suetrong, 2013. "Privatization, Incentive Delegation and Foreign Direct Investment," Open Economies Review, Springer, vol. 24(4), pages 657-676, September.
  4. Rudra Sensarma & Bibhas Saha, 2008. "The Distributive Role of Managerial Incentives in a Mixed Duopoly," Economics Bulletin, AccessEcon, vol. 12(28), pages 1-10.
  5. Ngo Long & Frank Staehler, 2008. "How does state ownership affect optimal export taxes?," Economics Bulletin, AccessEcon, vol. 6(37), pages 1-7.

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