Privatization, pollution, and welfare in a mixed differentiated duopoly

This paper investigates the impacts exerted by the residents’ environmental preference on privatization in a mixed differentiated duopoly. We assume that the production will generate environmental pollution, which causes an extra cost that the private firm does not bear but residents with the environmental preference have to tolerate. The government pursues to maximize social welfare. We find that the residents’ environmental preference has significant impacts on privatization. When residents pay more attention to environmental pollution, privatization cannot induce more social welfare, and thus the government will choose not to privatize the public firm. The degree of substitution of products will affect the results when the value of the residents’ environmental preference is given, but the order of the firms’ moves will not change the results