Environmental Policy with Green Consumerism

47 Pages Posted: 13 Aug 2020

See all articles by Stefan Ambec

Stefan Ambec

University of Toulouse Capitole

Philippe De Donder

affiliation not provided to SSRN

Date Written: 2020

Abstract

Is green consumerism beneficial to the environment and the economy? To shed light on this question, we study the political economy of environmental regulations in a model with neutral and green consumers where the latter derive some warm glow from buying a good of higher environmental quality produced by a profit-maximizing monopoly, while the good bought by neutral consumers is provided by a competitive fringe. Consumers unanimously vote for a standard set at a lower than first-best level, or for a tax delivering the first-best environmental protection level. Despite its under-provision of environmental protection, the standard dominates the tax from a welfare perspective due to its higher productive efficiency, i.e., a smaller gap between the environmental qualities of the two goods supplied. In stark contrast, voters unanimously prefer a tax to a standard when the willingness to pay for greener goods is small enough.

Keywords: environmental regulation, corporate social responsibility, green consumerism, product differentiation, tax, standard, green label, political economy

JEL Classification: D240, D620, Q410, Q420, Q480

Suggested Citation

Ambec, Stefan and Donder, Philippe De, Environmental Policy with Green Consumerism (2020). CESifo Working Paper No. 8457, Available at SSRN: https://ssrn.com/abstract=3671242 or http://dx.doi.org/10.2139/ssrn.3671242

Stefan Ambec (Contact Author)

University of Toulouse Capitole ( email )

France

Philippe De Donder

affiliation not provided to SSRN

No Address Available

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