Environmental attitudes and impacts of privatization on R&D, environment and welfare in a mixed duopoly

Abstract

We introduce the environmental attitudes of the public firm into a polluting mixed duopoly and then examine the effects of privatization on the environmental R&D (ER&D), the environmental quality and the social welfare. The government levies an exogenous environmental tax on pollution and both firms adopt the cleaner production technology to reduce emissions. We mainly find that, when the public firm cares less about the environment, privatization can induce both firms’ ER&D and better the environment. However, the opposite may appear when the public firm cares much for the environment. In addition, whether privatization improves or reduces the social welfare in the case of high marginal environmental damage depends on the environmental attitudes of the public firm and the environmental tax rates.