Efficiency inducing taxation for polluting oligopolists: the irrelevance of privatization

This paper studies the optimal environmental policy in a mixed market when pollution accumulates over time. Specifically, we assume quantity competition between several private firms and one partially privatized firm. The optimal emission tax is shown to be independent of the weight the privatized firm puts on social welfare. The optimal tax rule, the accumulated stock of pollution, firms' production paths and profit streams are identical irrespective of the public firm's ownership status.