Optimal Pollution Control in a Mixed Oligopoly with Research Spillovers
29 Pages Posted: 20 Apr 2018
Date Written: March 05, 2018
We study optimal pollution abatement under a mixed oligopoly game when firms engage in emissions-reducing R&D that is imperfectly appropriable. The regulator uses a tax to curb emissions. Results show that in a mixed oligopoly, the public firm has positive emissions reduction in equilibrium; however, emissions reductions of the private firm could be positive or zero. Under certain conditions, the optimal pollution tax is positive; otherwise, the tax reverts to a subsidy. Comparing mixed and private duopolies, privatization leads to reductions in R&D and output, but to an increase in overall emissions, so privatization tends to make the environment worse.
Keywords: mixed oligopoly, R&D, pollution, spillovers, taxation, subsidy
JEL Classification: D430, D620, O330, Q550
Suggested Citation: Suggested Citation