The Environmental and Macroeconomic Effects of Socially Responsible Investment
33 Pages Posted: 14 Jul 2008
Date Written: July 2008
We analyze the effects of socially responsible investment and public abatement on environmental quality and the economy in a continuous-time dynamic growth model featuring optimizing households and firms. Environmental quality is modelled as a renewable resource. Consumers can invest in government bonds or firm equity. Since investors feel partly responsible for environmental pollution when holding firm equity, they require a premium on the return to equity. We show that socially responsible investment behaviour by households partially offsets the positive effects on environmental quality of public abatement policies.
Keywords: socially responsible investment, economic growth, environmental economics, resource dynamics, stock market
JEL Classification: H23, M14, O16, O41, Q21
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