Trade liberalization, consumption externalities and the environment: a mixed duopoly approach

This paper studies the environmental tax and trade liberalization in a mixed duopolistic market wherein environmental damage is associated with consumption. In particular, we consider the effect of privatization on environmental tax and the effect of trade liberalization on the environment in an importing country. The results show that the optimal environmental tax in a mixed duopoly is higher than the Pigouvian level and the optimal tax in a pure duopoly. Furthermore, trade liberalization does not alter the environment.