Collusion with Public and Private Ownership and Innovation
41 Pages Posted: 24 Oct 2017 Last revised: 19 Nov 2017
Date Written: November 17, 2017
We argue that public ownership gives firms the option to collude and engage in rent seeking on existing technologies. While this option can enhance firm value, it also reduces the commitment to developing new technologies. We show that the option to collude is valuable when innovation is either not attractive or very attractive, resulting in a U-shaped relation between the attractiveness of innovation and the preference for public ownership. Control via equity stakes could also facilitate rent seeking, but is an imperfect substitute. The main predictions of our model are consistent with empirical patterns and shed light on several puzzling stylized facts.
Keywords: Public and Private Ownership, Innovation, Collusion
JEL Classification: G31, G32, L41, O31
Suggested Citation: Suggested Citation