Public Grants Awarded to Private Firms: A Mixed Duopoly Analysis

Abstract

The literature presents conflicting arguments on the social value of public grants awarded to private firms. Some of the prominent examples are those associated with public grants for medical research awarded by the National Institute of Health to private healthcare providers. This study evaluates the social welfare impact of such public grants to private sector in a mixed duopoly model. The results generate equilibrium-based conditions that could be responsible for the enhancing or deteriorating social welfare effect of public grants awarded to private healthcare providers. The status of the competing public healthcare providers turns out to be a crucial factor. The results have policy implications for public granting agencies and for state governments in charge of public healthcare providers.