Mixed Duopoly and Environment


  • Rupayan Pal, Indira Gandhi Institute of Development Research (IGIDR), Film City Road, Gen. A. K. Vaidya Marg, Goregaon (East), Mumbai 400065, India (rupayan@igidr.ac.in). Bibhas Saha, School of Economics, University of East Anglia, Norwich NR4 7TJ, United Kingdom (b.saha@uea.ac.uk).

  • We gratefully acknowledge helpful comments from two anonymous referees. Remaining errors, if any, are our responsibility.


We show under general demand and cost conditions that in a mixed duopoly with pollution the government can implement the socially optimal outputs and abatements by a tax-subsidy scheme and keeping the public firm fully public. The scheme requires taxing outputs and subsidizing abatements at different rates, unlike a pollution tax. Our result improves on the shortcoming of a pollution tax to implement the social optimum. We also show that when the private firm is partly foreign-owned, the government will adopt some privatization and will not implement the social optimum, though the social optimum is implementable.