Does partial privatization improve the environment?

This working paper analyses the impact of privatisation on the environment, where the level of privatisation is endogenously determined. The paper clarifies that the production process in many industries emits pollutants, which damages the environment. Yet, the extent of such environmental damage is likely to depend on the intensity of product market competition, which implies that privatisation can generate environmental outcomes.

The document’s main findings are as follows:

• environmental damage increases with the increase in the level of privatisation
• thereafter, it starts declining with the increase in the level of privatisation
• partial privatisation is optimal from the social welfare point of view
• however, the social welfare maximising level of privatisation damages the environment most.
  

Accordingly, the author concludes the following:

• it is clear that there is a conflict of interests between the “green lobby” and the “economic welfare lobby” as far as privatisation is concerned 
• the environmental awareness of citizens and institutional factors are likely to play crucial roles in determining the relative strengths of the parties involved.
  

The document suggests extending the research to a more general framework which considers the bargaining between the “green lobby” and the “economic welfare lobby”. Moreover, it suggests that researchers extend its analysis by considering consumption related pollution.