Green Investors and the Return on Capital in General Equilibrium
15 Pages Posted: 18 Feb 2024 Last revised: 8 Dec 2024
Date Written: October 14, 2024
Abstract
We study how “green” preferences affect the return on capital in a general equilibrium model with overlapping generations and two types of investors. The “brown” type only cares about financial returns, while the “green” type also cares about climate damages from emissions. Based on the preferences of their owners, firms make an endogenous emission abatement choice. We find that the return on capital of green firms increases in the share of green investors, and that the return differential between green and brown firms decreases in the share of green investors. In general equilibrium, the labor demand of green firms can negatively impact the return on capital of brown firms. We show that a carbon tax curbs the return on capital differential as the behavior of the two types of investors converges.
Keywords: Carbon Abatement, Environmental Economics, ESG Investing, OLG Model
JEL Classification: D58, Q5, Q54
Suggested Citation: Suggested Citation
Duineveld, Sijmen and Lessmann, Kai and Hambel, Christoph,
Green Investors and the Return on Capital in General Equilibrium
(October 14, 2024). Available at SSRN: https://ssrn.com/abstract=4712457 or http://dx.doi.org/10.2139/ssrn.4712457
Do you have a job opening that you would like to promote on SSRN?
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.