Optimal pollution control in a mixed oligopoly with research spillovers

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.