Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?

46 Pages Posted: 6 Apr 2020 Last revised: 10 Jul 2023

See all articles by Philippe Aghion

Philippe Aghion

College de France and London School of Economics and Political Science, Fellow; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Roland Bénabou

Princeton University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Ralf Martin

Imperial College London

Alexandra Roulet

INSEAD

Multiple version iconThere are 2 versions of this paper

Date Written: April 2020

Abstract

This paper investigates the joint effect of consumers' environmental concerns and product-market competition on firms' decisions whether to innovate “clean” or “dirty”. We first develop a step-by-step innovation model to capture the basic intuition that socially responsible consumers induce firms to escape competition by pursuing greener innovations. To test and quantify the theory, we bring together patent data, survey data on environmental values, and competition measures. Using a panel of 8,562 firms from the automobile sector that patented in 42 countries between 1998 and 2012, we indeed find that greater exposure to environmental attitudes has a significant positive effect on the probability for a firm to innovate in the clean direction, and all the more so the higher the degree of product market competition. Results suggest that the combination of historically realistic increases in prosocial attitudes and product market competition can have the same effect on green innovation as major increase in fuel prices.

Suggested Citation

Aghion, Philippe and Bénabou, Roland and Martin, Ralf and Roulet, Alexandra, Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty? (April 2020). NBER Working Paper No. w26921, Available at SSRN: https://ssrn.com/abstract=3569385

Philippe Aghion (Contact Author)

College de France and London School of Economics and Political Science, Fellow ( email )

London
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Roland Bénabou

Princeton University - Department of Economics ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER) ( email )

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United States
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IZA Institute of Labor Economics

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Ralf Martin

Imperial College London ( email )

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United Kingdom

Alexandra Roulet

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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