Asymmetric regulators in polluting mixed oligopolies: Agency problems and second-mover advantage

Abstract

We investigate privatization decisions in a mixed oligopoly market, with and without environmental regulation. We consider three agents: the manager of the public firm, the environmental agency, and the regulator choosing privatization levels; allowing them to assign different weights to pollution. When environmental policy is absent, we find that privatization decisions in equilibrium suffer from agency problems, yielding potentially inefficient privatizations. When environmental regulation is present and privatization decisions precede this regulation, privatizations have no impact on equilibrium output; while the opposite holds when environmental policy is chosen first. Our results, then, identify the presence of a second-mover advantage when asymmetric government agencies act sequentially.