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ABSTRACTThis paper is the first to examine the incentive for partial privatization in a mixed duopoly with R&D rivalry. We show that because mixed duopolies engage in more R&D, the optimal extent of privatization is unambiguously reduced. Yet, this reduction is often very modest. Adopting the extent of privatization that would be optimal if one ignored the R&D rivalry routinely results in greater welfare than retaining a fully public firm and ignoring partial privatization. Only when R&D has an extremely low cost would it be preferable to ignore partial privatization.

AbstractA classic R&D rivalry is compared to R&D cooperation while embedded in a model of endogenous network compatibility. We show that complete incompatibility is more likely to occur with cooperative R&D. Complete incompatibility increases the advantage in R&D and profitability of the incumbent over the entrant. In our initial illustration, cooperation in network industries with endogenous compatibility generates no higher (and often lower) welfare than in non‐network industries. In our generalization, cooperation in network industries generates welfare loss for a wider range of R&D spillovers. This suggests that R&D cooperation should receive stricter policy scrutiny in network industries with endogenous compatibility.

AbstractThis paper reconsiders the classic issue of whether provision of a public good should be undertaken directly by the government or through private contracting (Hart, Andrei, & Robert, 1997). We consider a third alternative of provision by a mixed ownership firm. We assume that this mixed ownership firm provides the government principal with a combination of the contracting problems it faces in the two more extreme alternatives. We show that full government ownership and provision is never optimal and that frequently the mixed firm undertakes intermediate investments that also prove welfare superior to fully private contracting. These results carry over to an extension in which the agent is presumed to be a foreigner.