Partial Passive Ownership and Environmental Innovation : The Role of Emission Taxes and Information Sharing

This paper examines the effects of partial passive ownership (PPO) on environmental research and development (ER&D), environmental quality, and social welfare in a polluting duopoly. We develop a model in which firms can reduce emissions through ER&D investments in clean technologies, subject to either exogenous or endogenous emission tax regimes, and with or without ER&D information sharing. The analysis shows that PPOs consistently reduce aggregate emissions, thereby improving environmental quality. Under exogenous taxation, PPOs increase total ER&D, while under endogenous taxation the effect depends on the severity of environmental damage and the degree of information disclosure. When environmental damage is low, PPOs either leave total ER&D unchanged or reduce welfare; when damage is high, PPOs may enhance both ER&D and welfare, particularly when firms share ER&D information. The results highlight the need for antitrust and environmental regulators to adopt context-specific approaches when assessing PPOs in high-polluting industries.