Working Paper: CEPR ID: DP15355
Authors: Marco Marini; Ornella Tarola; Jacques-François Thisse
Abstract: We study how the supply of environmentalism, which is defined by psychic benefits (costs) associated with the purchase of high-environmental (low-environmental) qualities, affects the way firms choose their products and the ensuing consequences for the global level of pollution. Contrary to general belief, a high supply of environmentalism does not give rise to a better environmental outcome because it endows firms with more market power which they use to maximize profits. By contrast, standard policy instruments such as a minimum quality standard or the use of greener technologies leads to a better ecological footprint.
Keywords: Environmentalism; Vertical Product Differentiation; Psychic Costs and Benefits; Environmental Policy
JEL Codes: D11; L13; Q50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher supply of environmentalism (Q21) | increased market power (D43) |
| increased market power (D43) | higher prices for green products (Q21) |
| higher prices for green products (Q21) | encourages more consumers to purchase brown products (D16) |
| increased environmentalism (F64) | firms adjust product qualities (L15) |
| firms adjust product qualities (L15) | less favorable ecological outcomes (Q57) |
| higher supply of environmentalism (Q21) | greater pollution (Q53) |
| environmentalism (Q57) | decreases environmental surplus (Q31) |
| environmentalism (Q57) | increases social welfare (D69) |