Optimal Pollution Control in a Mixed Oligopoly with Research Spillovers
20 Pages Posted: 6 Mar 2019
Date Written: March 2019
We study optimal pollution abatement under a mixed oligopoly when firms engage in emissions‐reducing research and development (R&D) with imperfect appropriation. 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, privatisation leads to reductions in R&D and output, but to an increase in overall emissions, so privatisation tends to make the environment worse.
Keywords: abatement, mixed oligopoly, pollution, R&D, spillovers, taxation
JEL Classification: D43, D62, O33, Q55
Suggested Citation: Suggested Citation