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

Carlo Capuano, Giuseppe De Feo

Research output: Working paper

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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.
Original languageEnglish
Number of pages27
Publication statusPublished - 2008

Keywords

  • mixed oligopoly
  • privatization
  • endogenous timing
  • distortionary taxes

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