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Partial Privatization and Subsidization in a Mixed Duopoly: R&D versus Output Subsidies

Lee, Sang-Ho and Muminov, Timur and Tomaru, Yoshihiro (2017): Partial Privatization and Subsidization in a Mixed Duopoly: R&D versus Output Subsidies.

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Abstract

This study investigates R&D and output subsidies in a mixed duopoly with partial privatization. We show that an output subsidy is welfare-superior to an R&D subsidy policy, but the government has a higher incentive to privatize the public firm under the output subsidy than the R&D subsidy. However, when the government uses the policy mix of R&D and output subsidies together, it can achieve the first-best allocation, in which the degree of privatization does not influence output subsidies but influences R&D subsidies.

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