Research spillovers and partial passive ownership by a public enterprise

This study examines the impacts of partial passive ownership (PPO) by a public enterprise on firm's research and development (R&D) decisions in the presence of research spillovers. We find that PPO always increases welfare in a mixed duopoly, while it only increases (decreases) welfare in a private duopoly when the spillover rate is high (low). We also show that privatisation policy can increase (decrease) welfare when both PPO and spillover rates are high (low) under R&D competition. In addition, we examine research joint ventures (RJVs) and find that welfares in both mixed and private duopolies under RJVs are always higher than those under R&D competition, while privatisation policy always increases welfare regardless of PPO and the organisational form of RJVs. Therefore, the effects of PPO by a public enterprise crucially depend not only on spillovers rate, but on the type of RJVs formation and the implementation of privatisation policy.