Considering a differentiated mixed duopoly we show that when privatization and pollution
tax are used together environmental damage will be non-monotone in the level of
privatization, and optimal privatization is always partial privatization. Whether privatization
will improve the environment or not depends on the public firm's concern for environment. If
the public firm is unconcerned about environment, the socially optimal privatization will also
damage the environment most. But when the public firm is concerned about environment …