Privatization in oligopoly: the impact of the shadow cost of public funds

Carlo Capuano, Giuseppe De Feo

Research output: Working paper

Abstract

The aim of this paper is to investigate the welfare eect of privatization in oligopoly when the government takes into account the distortionary eect of rising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the rms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent effciency gains, privatization never increases welfare. Moreover, even when large effciency gains are realized, an ineffcient public rm may be preferred.
LanguageEnglish
Number of pages27
Publication statusPublished - 2008

Fingerprint

oligopoly
privatization
welfare
costs
taxation

Keywords

  • mixed oligopoly
  • privatization
  • endogenous timing
  • distortionary taxes

Cite this

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title = "Privatization in oligopoly: the impact of the shadow cost of public funds",
abstract = "The aim of this paper is to investigate the welfare eect of privatization in oligopoly when the government takes into account the distortionary eect of rising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the rms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent effciency gains, privatization never increases welfare. Moreover, even when large effciency gains are realized, an ineffcient public rm may be preferred.",
keywords = "mixed oligopoly, privatization, endogenous timing, distortionary taxes",
author = "Carlo Capuano and {De Feo}, Giuseppe",
note = "Universit{\`a} degli Studi di Salerno – Dipartimento di Scienze Economiche e Statistiche Working Paper, No. 3.195. Also published as an article",
year = "2008",
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Privatization in oligopoly : the impact of the shadow cost of public funds. / Capuano, Carlo; De Feo, Giuseppe.

2008.

Research output: Working paper

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T1 - Privatization in oligopoly

T2 - the impact of the shadow cost of public funds

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AU - De Feo, Giuseppe

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PY - 2008

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N2 - The aim of this paper is to investigate the welfare eect of privatization in oligopoly when the government takes into account the distortionary eect of rising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the rms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent effciency gains, privatization never increases welfare. Moreover, even when large effciency gains are realized, an ineffcient public rm may be preferred.

AB - The aim of this paper is to investigate the welfare eect of privatization in oligopoly when the government takes into account the distortionary eect of rising funds by taxation (shadow cost of public funds). We analyze the impact of the change in ownership not only on the objective function of the rms, but also on the timing of competition by endogenizing the determination of simultaneous (Nash-Cournot) versus sequential (Stackelberg) games. We show that, absent effciency gains, privatization never increases welfare. Moreover, even when large effciency gains are realized, an ineffcient public rm may be preferred.

KW - mixed oligopoly

KW - privatization

KW - endogenous timing

KW - distortionary taxes

UR - http://strathprints.strath.ac.uk/28116/

M3 - Working paper

BT - Privatization in oligopoly

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