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Optimal subsidies in the competition between private and state-owned enterprises

Mingzhi Li, Jaimie W. Lien and Jie Zheng

International Review of Economics & Finance, 2021, vol. 76, issue C, 1235-1244

Abstract: Recent policy discussions have debated whether governments should adopt equal policies towards state-owned and private enterprises. We analyze this issue in a mixed oligopoly setting, in which the government can award different subsidies to these two types of firms. We show that the optimal subsidy policy is equal treatment, regardless of the relative weight on social welfare versus profits by the state-owned enterprise. This result is robust to the form of production, market demand, composition of firm types, and heterogeneity in the objectives of firms. However, heterogeneous cost structures among the firms yield a non-uniform optimal subsidy.

Keywords: State-owned enterprises; Mixed oligopoly; Subsidy policy; Publicization; Privatization (search for similar items in EconPapers)
JEL-codes: D43 D61 H21 H25 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.iref.2019.11.011

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