Innovative Interaction in Mixed Market: An Effect of Agency Problem in State-Owned Firm

I investigate an innovative interaction before a market competition in a mixed duopoly, where a state-owned firm and a private firm compete with each other. I find that although it reduces the effort level of the state-owned firm, an agency problem can improve the expected social welfare in some cases. I also find that setting the minimum wage level higher, which has an effect to lower the responsibility of bureaucratic managers, can be desirable from the viewpoint of expected social welfare in some cases.