Social Network Effects and Green Consumerism

Tinbergen Institute Discussion Paper 14-150/VIII

29 Pages Posted: 4 Dec 2014

See all articles by Dominic Hauck

Dominic Hauck

VU University Amsterdam

Erik Ansink

VU University Amsterdam - Department of Spatial Economics

Jetske Bouma

PBL Netherlands Environmental Assessment Agency (The Hague)

Daan van Soest

Tilburg University - CentER & Department of Economics

Date Written: December 2, 2014

Abstract

One of the drivers of green consumerism are social network externalities that are associated with buying 'green' - because green consumerism is fashionable, or because of reputation effects. We analyze how the strength of this social network effect impacts green consumerism, environmental externalities and total welfare. We discuss a model where products are differentiated according to their environmental quality, where the production of green products generates positive externalities to all, and where those consumers purchasing a green product variety receive the additional benefits of being a member of the network of green consumers. Depending on the strength of the social network effect, we show that (a) firms may produce lower quality, (b) the market may generate fewer positive environmental externalities, and (c) total welfare may deteriorate. The main policy implication is that if there is a network effect, regulators should choose a stricter minimum environmental quality standard.

Keywords: Quality Differentiation, Social Network Effect, Minimum Environmental Quality Standard

JEL Classification: D11, L15, Q31

Suggested Citation

Hauck, Dominic and Ansink, Erik and Bouma, Jetske and van Soest, Daan P., Social Network Effects and Green Consumerism (December 2, 2014). Tinbergen Institute Discussion Paper 14-150/VIII. Available at SSRN: https://ssrn.com/abstract=2533890 or http://dx.doi.org/10.2139/ssrn.2533890

Dominic Hauck (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Erik Ansink

VU University Amsterdam - Department of Spatial Economics ( email )

De Boelelaan 1105
1081HV Amsterdam
Netherlands

Jetske Bouma

PBL Netherlands Environmental Assessment Agency (The Hague) ( email )

Oranjebuitensingel 6
The Hague, 2511 VE
Netherlands

Daan P. Van Soest

Tilburg University - CentER & Department of Economics ( email )

P.O. Box 90153
5000 LE Tilburg
Netherlands
+31 13 466 2072 (Phone)

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