Optimal environmental tax and level of privatization in an international duopoly

This paper explores the optimal environmental tax and level of privatization in an international duopolistic market. We show that when the government is able to control the environmental tax and the extent of privatization, the optimal environmental tax is lower than the standard Pigouvian level. We also show that the optimal level of privatization of state-owned enterprises is partial privatization. Further, the optimal level of privatization is inversely dependent on the cleanup cost of past environmental contamination.