Privatization, Efficiency Gap, and Subsidization with Excess Taxation Burden

Leonard Wang F.S. and Tai-Liang Chen

Hitotsubashi Journal of Economics, 2011, vol. 52, issue 1, 55-68

Abstract: It is well recognized that the impact of subsidization/taxation policies hinges on the market structure to which they apply. We show that different degree of efficiency gain sharply changes the comparisons of optimal subsidy, total outputs and social welfare between mixed and private duopoly. What is more, for an imposition of an optimal subsidy, welfare may increase, decrease, or remain unchanged with privatization, which depends on the level of the cost efficiency gap and the taxation burden. However, it may be possible to raise welfare through privatization as long as the efficiency gain prevails or no excess taxation burden exists. Government sets higher subsidy to stimulate firms' production if the value of cost-differential is assured.

Keywords: Privatization; Mixed Duopoly; Cost Efficiency Gap; Subsidization; Excess Taxation Burden (search for similar items in EconPapers)
JEL-codes: H20 L13 L33 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:52:y:2011:i:1:p:55-68

DOI: 10.15057/19217

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