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When Do State-Owned Firms Crowd Out Private Investment?

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  • Stefan Buehler
  • Simon Wey

Abstract

This paper examines the conditions under which a state-owned firm with a political agenda strategically crowds out investment by a private firm. Employing reduced-form analysis, we show that strategic crowding out occurs if (i) the private firm regards investments as strategic substitutes, and (ii) private investment is undesirable from the state-owned firm’s perspective. We discuss how our analysis applies to real-world markets and argue that it provides an explanation for the ambivalent evidence on the effect of public on private investment: State ownership is neither necessary nor sufficient for crowding out to occur. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Stefan Buehler & Simon Wey, 2014. "When Do State-Owned Firms Crowd Out Private Investment?," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 319-330, September.
    • Handle: RePEc:kap:jincot:v:14:y:2014:i:3:p:319-330
    DOI: 10.1007/s10842-013-0164-y
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    More about this item

    Keywords

    Public investment; Crowding out; Political agenda; D43; H42; L13;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • 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

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