The literature on the environmental issue, Simpson (1995) derived the optimal pollution for a Cournot duopoly and found that if firms have different production costs, the optimal tax rate may exceed the marginalal damage. Katsoulacos and
3
Xepapadeas (1995) proved that the tax rate is higher than the marginalal damage, when the number of firms corresponds to the second best optimum.
There are many literature has been discussed environmental policy in mixed oligopoly. Bárcena-Ruiz and Garzón (2006) explored how the decision on whether to privatize a public firm or not with environmental policy, and showed that when the government sets a tax to protect the environment, the tax is lower in a mixed oligopoly than in a private one, and that the environmental damage is greater. These papers did not consider the role of product differentiation in a pure or mixed oligopoly.
Wang and Wang (2009) re-examined whether privatization improves (or deteriorates) the environment in a mixed duopolistic framework with differentiated product and pollution abatement. It is shown that, due to privatization, less attention is paid to pollution abatement by all the firms coupled with less environment taxes levied by the government, and the environment is more damaged when the product is less substitutable. When the product is highly substitutable, social welfare deteriorates accompanied with the privatization.
In recent years many studies focused on the privatization issue and related environmental policy. Beladi and Chao (2006) discussion the case of a monopoly partially privatized firm generates pollution emissions. It shows that privatization can have a negative effect on the environment. Due to profit maximization directly lowers output but the reduced tax rate gives a positive effect on output. So that privatization may harms the environment.
The environmental awareness of individuals has been incorporated into the analysis in the literature. Rodriguez-Ibeas (2007) have considered a duopolistic model of environmental product differentiation with two types of consumers (green and brown) to analyze how environmental awareness affects the environment. Yakita (2009)
4
assumed that an environmentally-friendly technology not only reduces pollution emissions but also strengthens the preference of consumers for goods produced with such a technology. Wang et. al. (2011) investigate the optimal environmental and privatization policies in a mixed oligopoly, wherein firms produce differentiated goods with environmental damage that is measured by government and observed by consumers.
Few studies have considered foreign ownership, privatization, and environmental policies. Wang and Chen (2011) examine the impact of foreign penetration on privatization in a mixed oligopolistic market. It showed that government should increase the degree of privatization along with an increasing proportion of domestic stockholding of multinational firms. Furthermore, an increase in domestic ownership of multinational firms raises all domestic private firms' profit and social welfare.
Ohori (2011) investigates the effects of foreign ownership of a domestic firm on the establishment of environmental policy under an oligopolistic market. Find that foreign ownership restriction leads to low environmental tax rates and an increase in welfare.
In an open economy with consumption externalities, Wang et al. (2007) investigated the optimal environmental tax and the environmental effect of trade liberalization in a mixed oligopoly and pure oligopoly, wherein firms produce the differentiated goods and the environmental damage is associated with consumption. It demonstrated that when the domestic market increases its openings, the tariff reduction does not always bring positive effects on the environment in mixed oligopoly; but, in pure oligopoly with homogeneous goods, the tariff reduction is bad for the environment. Chao and Yu (2007) examined the effects of trade liberalization on firm ownership and the environment. It is found that tariff reduction can result in a switch in firm ownership from domestic to foreign, coupled with a lower pollution
5
tax.
The literature on wage bargaining has focused mainly on two structures. In one, each firm negotiates with an independent union at firm level (decentralization) and in the other each firm bargains with an industry-wide union (centralization). Assuming simultaneous negotiations, Horn and Wolinsky (1988) and Davidson (1998) show that a centralized negotiation results in higher wages than a decentralized one since the bargaining strength of the workers is greater; therefore, workers prefer centralized bargaining while firms prefer decentralized bargaining. Bárcena-Ruiz (2003) extends the analysis to study the bargaining structure preferred by governments. The literature on the environment does not consider that workers can adopt different organizational structures to set wages (see, for example, Ulph 1996). On the other hand, the literature on wage bargaining does not take into account that firms pollute the environment. In order to close this gap and take into account the relationship between environmental policy and the labour market, Bárcena-Ruiz and Garzón (2009) analyze the choice of environmental taxes by governments in a two-country trade setting and show that under a decentralized structure governments choose environmental taxes closer to those which are socially efficient than those chosen under a centralized structure.
Wang et. al.(2012) explored the design of environmental policy under the consideration of union bargaining and firm heterogeneity in oligopoly.
6
CHAPTER TWO: Emission Taxes, Environmental Awareness and Social Welfare in a Mixed Duopoly
In this chapter, we examine the impact of an emission tax in a mixed duopolistic model characterized by consumers’ environmental awareness and produce differentiation. The purpose is to examine whether privatization improves the environment and social welfare or not in a mixed duopolistic model. We show that in mixed duopoly with emission tax and consumers` environmental awareness, the privatization will improve the environment and the welfare in a mixed duopolistic model.