The Effect of Government Support on Green Product Design and Environmental Impact

40 Pages Posted: 5 Dec 2018 Last revised: 14 Apr 2019

See all articles by Morris A. Cohen

Morris A. Cohen

University of Pennsylvania - The Wharton School

Shiliang Cui

Georgetown University - McDonough School of Business

Fei Gao

Indiana University Bloomington

Date Written: March 15, 2019

Abstract

We study competing fi rms' green product design decisions, and the effect of two common types of government support, namely R&D support and sales subsidies, on the products, firms and the resulting environmental impact. Each fi rm produces a product that contains a "traditional" quality and an "environmental" quality according to corresponding technology capabilities of the firm and market competition. Our main results are as follows. First, we show that fi rms will produce greener products and charge higher prices when they embrace greater technology capabilities related to production of the environmental quality, or when consumers become more conscious of the environmental impact. Second, we find that although both the government R&D support and sales subsidies prompt fi rms to produce greener products, the overall environmental impact is mixed. Specifi cally, while sales subsidies generally lead to positive environmental benefi ts, R&D support can have an unanticipated negative overall impact on the environment. Third, we show that fi rms do not always benefi t from either type of the government support.

Keywords: green product development; market competition; government support; environmental impact.

Suggested Citation

Cohen, Morris A. and Cui, Shiliang and Gao, Fei, The Effect of Government Support on Green Product Design and Environmental Impact (March 15, 2019). Available at SSRN: https://ssrn.com/abstract=3291017 or http://dx.doi.org/10.2139/ssrn.3291017

Morris A. Cohen

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104
United States

Shiliang Cui (Contact Author)

Georgetown University - McDonough School of Business ( email )

Washington, DC 20057
United States

Fei Gao

Indiana University Bloomington ( email )

1309 E 10th St
Bloomington, IN 47405
United States

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