PARTIAL PRIVATIZATION IN A MIXED DUOPOLY WITH AN R&D RIVALRY

This paper is the first to examine the incentive for partial privatization in a mixed duopoly with R&D rivalry. We show that because mixed duopolies engage in more R&D, the optimal extent of privatization is unambiguously reduced. Yet, this reduction is often very modest. Adopting the extent of privatization that would be optimal if one ignored the R&D rivalry routinely results in greater welfare than retaining a fully public firm and ignoring partial privatization. Only when R&D has an extremely low cost would it be preferable to ignore partial privatization.