Voluntary Green Commitment and Optimal Privatization Policy in a Mixed Eco-Industry

Abstract This study investigates the impact of target emissions from polluting firms on the production of green technology and the optimal policy decisions of privatization on the eco-industry under their voluntary commitments. For this, we formulate a vertical structure consisting of a downstream polluting industry and an upstream mixed eco-industry where private and public eco-firms produce emission abatement goods. The results show a U-shaped non-monotone relationship between environmental damage and the optimal degree of privatization, that is, welfare-maximizing public ownership is full nationalization or full or partial privatization, depending on the environmental damage. It supports that the government should have large ownership of partially privatized eco-firms for environmental protection, especially when environmental damage is serious.