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Kojun Hamada
''Privatization neutrality theorem in a mixed oligopoly with firm asymmetry''
( 2016, Vol. 36 No.1 )
This paper revisits the privatization neutrality theorem, which states that welfare is exactly the same before and after privatization when the government optimally subsidizes firms. Contrary to the existing literature that shows that this theorem does not hold when there is an asymmetry between a public firm and private firms in a mixed oligopoly, we prove that this theorem holds by appropriately setting the discriminatory subsidies. We show that, even if there exist differences in cost and/or the timing of production among firms, adopting the discriminatory subsidy policy leads to welfare neutrality.
Keywords: Privatization neutrality theorem, Mixed oligopoly, Firm asymmetry, Discriminatory subsidy, Stackelberg competition
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
H4 - Publicly Provided Goods: General
Manuscript Received : Sep 29 2015 Manuscript Accepted : Mar 17 2016

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