The study considers an environmental R&D subsidy in a mixed duopoly with spillovers. Public and private firms compete in environmental R&D investments and the government sets the subsidy to environmental R&D. This study examines three cases: (a) the public firm cares for the environment and maximises the welfare; (b) it does not care for the environment and maximises the sum of consumer and producer surpluses net of subsidy; and (c) it is privatised and maximises its own profit. The main findings are as follows: 1) the optimal subsidies are positive in all three cases; 2) the optimal subsidy always increases with spillovers in case (a), but it may decrease with spillovers in cases (b) and (c); 3) the optimal subsidy is higher in case (a) than in case (b) if the seriousness of environmental damage generated by pollution is small, however the opposite case may be the case if it is large; 4) the use of subsidy results in higher total R&D and lower environmental damage in all three cases; 5) privatisation lowers optimal subsidy (or environmental damage) no matter whether the public firm cares for the environment or not; and 6) privatisation reduces welfare if the public firm cares for the environment, but may raise welfare if it does not care for the environment.
The study examines strategic environmental research and development (ER&D) under environmental tax in a mixed duopoly and further analyzes the impact of privatization on it. We show that the environmental tax may not necessarily promote the private (or public) firm's ER&D, and the relative ER&D performance between firms depends on the public firm's environmental attitudes and the tax rate. When the public firm cares much for environment, it can be used as an instrument to correct the private firm's underinvestment (or overinvestment) in ER&D. Moreover, privatization can (cannot) raise both firms' ER&D simultaneously if the tax rate is high (low).
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.
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