Optimal Trade, Industrial, and Privatization Policies in a Mixed Duopoly with Strategic Managerial Incentives

This paper examines strategic managerial incentive and optimal privatization policy in a mixed duopoly model with a more efficient foreign private firm competing in the domestic market. It is shown that the home firm's incentive towards sales away from profit is higher and the foreign firm's is lower if the home firm's public ownership share is increased, its cost is lowered, or the foreign firm's cost is increased. Welfare in the pure public case is larger than in the pure private case, but a partial public ownership is optimal. The incentive schemes reduce welfare and the government's optimal ownership share compared with the case without such schemes