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Are Public Firms always Less Innovative than Private Firms?

Are Public Firms always Less Innovative than Private Firms? Abstract The effect of information spillovers is analysed in a mixed duopoly where a profit-maximizing private firm and a market-share-maximizing public firm decide whether to invest in a process innovation. It is shown that, when the spillover effect is rather strong, the public firm innovates in order to acquire a larger market share, while the private firm prefers that its rival invests in the new technology and reaps the benefits of technological leakages if investment costs are moderate. Thus, when information spillovers are taken into account, the public firm sometimes behaves more innovatively than the private firm, which is contrary to the well-known results. Furthermore, in a mixed duopoly where only the public firm invests, its average cost exceeds that of its competitor, but investment remains an efficient strategy compared with non-investment. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Japanese Economic Review Springer Journals

Are Public Firms always Less Innovative than Private Firms?

Zhang, Yanfang; Zhong, Weijun
The Japanese Economic Review , Volume 66 (3): 15 – Sep 1, 2015
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References (20)

Publisher
Springer Journals
Copyright
2015 Japanese Economic Association
ISSN
1352-4739
eISSN
1468-5876
DOI
10.1111/jere.12047
Publisher site
See Article on Publisher Site

Abstract

Abstract The effect of information spillovers is analysed in a mixed duopoly where a profit-maximizing private firm and a market-share-maximizing public firm decide whether to invest in a process innovation. It is shown that, when the spillover effect is rather strong, the public firm innovates in order to acquire a larger market share, while the private firm prefers that its rival invests in the new technology and reaps the benefits of technological leakages if investment costs are moderate. Thus, when information spillovers are taken into account, the public firm sometimes behaves more innovatively than the private firm, which is contrary to the well-known results. Furthermore, in a mixed duopoly where only the public firm invests, its average cost exceeds that of its competitor, but investment remains an efficient strategy compared with non-investment.

Journal

The Japanese Economic Review – Springer Journals

Published: Sep 1, 2015

Keywords: economics, general; microeconomics; macroeconomics/monetary economics//financial economics; econometrics; development economics; economic history

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