Privatization and Licensing under Public Budget Constraint

No 343, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: We analyse the interplay of privatization and technology licensing under a public budget constraint, where a cost-disadvantaged public firm has to generate profits to pay for the license. In a mixed duopoly, we consider the licensing of a cost-reducing technology by an outsider innovator. The innovator chooses to license smaller sizes of innovation to both firms, whereas, larger innovation is licensed exclusively to the private firm. The public firm alone never gets the license. Thus, the public firm can never “catch up” with its more efficient private rival. We find the possibility of both partial and full privatization in our model. Additionally, from a social planner’s perspective, it is always optimal to allocate licenses to both firms.

Keywords: mixed duopoly; technology licensing; privatization; budget constraint; welfare. JEL codes: L32, L33, H42, O33, O38 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2023-12
New Economics Papers: this item is included in nep-bec, nep-com, nep-gth and nep-ind
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