Partial privatization and subsidization in a time-consistent policy: output versus R&D subsidies

This study revisits welfare comparisons between output and R&D subsidies for a mixed duopoly with partial privatization in a time-consistent policy framework. We show that an output subsidy is welfare-superior to an R&D subsidy policy only when the degree of privatization is high. We also show that the government has a lower incentive to privatize the public firm under the R&D subsidy but full nationalization with an R&D subsidy can decrease the welfare than full privatization with an output subsidy.