Abstract
It is well recognized that the impact of subsidization/taxation policies hinges on the market stru cture to which they apply. We show that different degree of effi ciency 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 effi ciency gap and the taxation burden. However, it may be possible to raise welfare through privatization as longas the e ffi ciency gain prevails or no excess taxation burden exists. Government sets higher subsidy to stimulate firmsʼ production if the value of cost-differential is assured.
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