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Corporate social responsibility and privatization policy in a mixed oligopoly

Kim, Seung-Leul and Lee, Sang-Ho and Matsumura, Toshihiro (2017): Corporate social responsibility and privatization policy in a mixed oligopoly.

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Abstract

This article formulates a mixed oligopoly in which a public firm competes with two private firms that may adopt corporate social responsibility (CSR). We investigate the optimal privatization policy and find that, depending on the magnitude of CSR, the optimality of either nationalization or full privatization can hold. In particular, we show that the optimal degree of privatization is decreasing in the magnitude of CSR and thus nationalization can be optimal if they have homogeneous objectives. Under significant heterogeneity of the objectives among firms, however, the optimal degree of privatization is non-monotone with the magnitude of CSR, but full privatization can be optimal. This result suggests that the optimal privatization policy depends on both the magnitude of CSR and the heterogeneity of the objectives among private firms.

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