PARTIAL PRIVATIZATION AND SUBSIDIZATION IN A MIXED DUOPOLY: R&D VERSUS OUTPUT SUBSIDIES

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. We also show that 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.