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Collusion with Public and Private Ownership and Innovation

41 Pages Posted: 24 Oct 2017 Last revised: 19 Nov 2017

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Vladimir N. Vladimirov

University of Amsterdam Business School

Date Written: November 17, 2017

Abstract

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

Boot, Arnoud W. A. and Vladimirov, Vladimir N., Collusion with Public and Private Ownership and Innovation (November 17, 2017). Available at SSRN: https://ssrn.com/abstract=3057555

Arnoud Boot

University of Amsterdam - Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4162 (Phone)
+31 20 525 5318 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Vladimir Vladimirov (Contact Author)

University of Amsterdam Business School ( email )

Roetersstraat 18
Amsterdam, 1018WB
Netherlands

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