IDEAS home Printed from https://ideas.repec.org/a/wly/ectrin/v28y2020i1p45-68.html
   My bibliography  Save this article

Optimal mixed ownership: A contract view

Author

Listed:
  • Zheng Wang
  • John S. Heywood
  • Guangliang Ye

Abstract

This paper reconsiders the classic issue of whether provision of a public good should be undertaken directly by the government or through private contracting (Hart, Andrei, & Robert, 1997). We consider a third alternative of provision by a mixed ownership firm. We assume that this mixed ownership firm provides the government principal with a combination of the contracting problems it faces in the two more extreme alternatives. We show that full government ownership and provision is never optimal and that frequently the mixed firm undertakes intermediate investments that also prove welfare superior to fully private contracting. These results carry over to an extension in which the agent is presumed to be a foreigner.

Suggested Citation

  • Zheng Wang & John S. Heywood & Guangliang Ye, 2020. "Optimal mixed ownership: A contract view," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 28(1), pages 45-68, January.
    • Handle: RePEc:wly:ectrin:v:28:y:2020:i:1:p:45-68
    DOI: 10.1111/ecot.12237
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecot.12237
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecot.12237?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    2. John Bennett & Elisabetta Iossa, 2006. "Delegation of Contracting in the Private Provision of Public Services," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 29(1), pages 75-92, September.
    3. J. Schuster, 1998. "Neither Public Nor Private: The Hybridization of Museums," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 22(2), pages 127-150, June.
    4. Oliver Hart, 2003. "Incomplete Contracts and Public Ownership: Remarks, and an Application to Public-Private Partnerships," Economic Journal, Royal Economic Society, vol. 113(486), pages 69-76, March.
    5. Kenji Fujiwara, 2007. "Partial Privatization in a Differentiated Mixed Oligopoly," Journal of Economics, Springer, vol. 92(1), pages 51-65, September.
    6. Hoppe, Eva I. & Schmitz, Patrick W., 2010. "Public versus private ownership: Quantity contracts and the allocation of investment tasks," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 258-268, April.
    7. Matsumura, Toshihiro, 1998. "Partial privatization in mixed duopoly," Journal of Public Economics, Elsevier, vol. 70(3), pages 473-483, December.
    8. Toshihiro Matsumura & Osamu Kanda, 2005. "Mixed Oligopoly at Free Entry Markets," Journal of Economics, Springer, vol. 84(1), pages 27-48, February.
    9. John S. Heywood & Xiangting Hu & Guangliang Ye, 2017. "Optimal Partial Privatization with Asymmetric Demand Information," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 173(2), pages 347-375, June.
    10. Ming Hsin Lin & Toshihiro Matsumura, 2018. "Optimal privatization and uniform subsidy policies: A note," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(3), pages 416-423, June.
    11. John Heywood & Guangliang Ye, 2010. "Optimal privatization in a mixed duopoly with consistent conjectures," Journal of Economics, Springer, vol. 101(3), pages 231-246, November.
    12. Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1127-1161.
    13. de Fraja, Giovanni & Delbono, Flavio, 1989. "Alternative Strategies of a Public Enterprise in Oligopoly," Oxford Economic Papers, Oxford University Press, vol. 41(2), pages 302-311, April.
    14. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    15. Patrick W. Schmitz, 2001. "Partial Privatization and Incomplete Contracts: The Proper Scope of Government Reconsidered," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 394-411, August.
    16. Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991. "Observable Contracts: Strategic Delegation and Cooperation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-559, August.
    17. John S. Heywood & Guangliang Ye, 2009. "Partial Privatization In A Mixed Duopoly With An R&D Rivalry," Bulletin of Economic Research, Wiley Blackwell, vol. 61(2), pages 165-178, April.
    18. Kenneth Fjell & Debashis Pal, 1996. "A Mixed Oligopoly in the Presence of Foreign Private Firms," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 737-743, August.
    19. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, April.
    20. White, Mark D., 2002. "Political manipulation of a public firm's objective function," Journal of Economic Behavior & Organization, Elsevier, vol. 49(4), pages 487-499, December.
    21. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
    22. repec:hal:pseose:halshs-01109351 is not listed on IDEAS
    23. V. Bhaskar & Bishnupriya Gupta & Mushtaq Khan, 2006. "Partial privatization and yardstick competition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(3), pages 459-477, July.
    24. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    25. Yoshihiro Tomaru & Leonard F. S. Wang, 2018. "Optimal Privatization and Subsidization Policies in a Mixed Duopoly: Relevance of a Cost Gap," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 174(4), pages 689-706, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doriani Lingga & Damiana Simanjuntak, 2022. "Location Choice of a Partially–Private Monopoly Supplier," Studies in Microeconomics, , vol. 10(1), pages 106-121, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. John Heywood & Guangliang Ye, 2010. "Optimal privatization in a mixed duopoly with consistent conjectures," Journal of Economics, Springer, vol. 101(3), pages 231-246, November.
    2. Yi Liu & Toshihiro Matsumura & Chenhang Zeng, 2021. "The relationship between privatization and corporate taxation policies," Journal of Economics, Springer, vol. 133(1), pages 85-101, June.
    3. Chang, Winston W. & Ryu, Han Eol, 2016. "Export rivalry, vertically-related markets, and optimal public ownership policy," Economic Modelling, Elsevier, vol. 54(C), pages 392-401.
    4. Kazuhiko Kato, 2013. "Optimal degree of privatization and the environmental problem," Journal of Economics, Springer, vol. 110(2), pages 165-180, October.
    5. Nakamura, Tamotsu & Takami, Hiroyuki, 2015. "Nash bargaining and partial privatization in mixed oligopoly," Economic Modelling, Elsevier, vol. 46(C), pages 315-321.
    6. Xia Wang & Tingting Tan & Mingqing Xing, 2022. "Environmental awareness of the private firm and optimal privatization in a mixed duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4055-4063, December.
    7. Haraguchi, Junichi & Matsumura, Toshihiro, 2017. "Firms' Costs, Profits, Entries, and Innovation under Optimal Privatization Policy," MPRA Paper 80927, University Library of Munich, Germany.
    8. Tai-Liang Chen, 2017. "Privatization and efficiency: a mixed oligopoly approach," Journal of Economics, Springer, vol. 120(3), pages 251-268, April.
    9. Junichi Haraguchi & Toshihiro Matsumura, 2021. "Profit‐enhancing entries in mixed oligopolies," Southern Economic Journal, John Wiley & Sons, vol. 88(1), pages 33-55, July.
    10. Alla Fridman, 2018. "Partial privatization in an exhaustible resource industry," Journal of Economics, Springer, vol. 124(2), pages 159-173, June.
    11. John S. Heywood & Shiqiang Wang & Guangliang Ye, 2021. "Partial Privatization Upstream with Spatial Price Discrimination Downstream," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(1), pages 57-78, August.
    12. Schmitz, Patrick W., 2015. "Government versus private ownership of public goods: The role of bargaining frictions," Journal of Public Economics, Elsevier, vol. 132(C), pages 23-31.
    13. Junlong Chen & Chaoqun Sun & Ruiyu He & Yibing Zhang & Jiali Liu, 2023. "Optimal nationalization policy in a heterogeneous mixed oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(2), pages 807-827, March.
    14. Stefano Colombo, 2016. "Mixed oligopolies and collusion," Journal of Economics, Springer, vol. 118(2), pages 167-184, June.
    15. Eva I. Hoppe & Patrick W. Schmitz, 2013. "Public-private partnerships versus traditional procurement: Innovation incentives and information gathering," RAND Journal of Economics, RAND Corporation, vol. 44(1), pages 56-74, March.
    16. Hoppe, Eva I. & Kusterer, David J. & Schmitz, Patrick W., 2013. "Public–private partnerships versus traditional procurement: An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 89(C), pages 145-166.
    17. Ryu, Han Eol, 2023. "Public utility ownership and in-kind trade policy in vertically related markets," Utilities Policy, Elsevier, vol. 81(C).
    18. Wang, Leonard F.S. & Chen, Tai-Liang, 2011. "Mixed oligopoly, optimal privatization, and foreign penetration," Economic Modelling, Elsevier, vol. 28(4), pages 1465-1470, July.
    19. Liu, Qian & Wang, Leonard F.S. & Chen, Charlie L., 2019. "Upstream privatization in mixed markets with retailer's efforts," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 338-345.
    20. Chen, Ding & Wang, Leonard F.S. & Lee, Jen-yao, 2019. "Foreign ownership, privatization and subsidization with shadow cost of public funds," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:ectrin:v:28:y:2020:i:1:p:45-68. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)2577-6983 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.