The Socially Efficient Firms' Mix in a Duopoly with Environmental Externalities

We characterise the socially optimal mix of firms in a duopoly with both profit-seeking and labour-managed firms. Firms’ activities generate a twofold externality: (i) production entails the exploitation of a common pool natural resource and (ii) production/consumption pollutes the environment. We show that it is always preferable to have at least one labour-managed firm in the industry, in view of its softer impact on environmental magnitudes. Moreover, if market size is large enough, a mixed duopoly is indeed the socially efficient industry configuration.