Consumer Guilt and Sustainable Choice: Environmental Impact of Durable Goods Innovation

K. Sudhir (), Ramesh Shankar and Yuan Jin
Additional contact information
K. Sudhir: Cowles Foundation, Yale University, https://faculty.som.yale.edu/ksudhir/
Ramesh Shankar: University of Connecticut
Yuan Jin: Texas Tech University

No 2320, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: The paper develops a modeling framework to study how sustainability interventions impact consumer adoption of durable goods innovation, firm profit and environmental outcomes in equilibrium. Our two period model with forward looking consumers and a monopoly firm introducing an innovation in the second period accommodates three key features: (1) it builds on the psychology literature linking reactive and anticipatory guilt to consumers’ environmental sensitivity on initial purchase and upgrade decisions; (2) it disentangles environmental harm over the product life into that arising from product use and dumping at replacement; and (3) it clarifies how a taxonomy of innovations (function, fashion and use-efficiency) differ in how they provide value and cause environmental harm during use and dumping. Given how guilt impacts environmental sensitivity, the model allows for owners upgrading a product to be more environmentally sensitive than first time buyers; this makes dumping harm and in-use harm from products not fungible. We find that with fashion and function innovations, increasing consumer sensitivity to environmental harm can surprisingly result in increased environmental harm. Further, when consumers are very sensitive to environmental harm, firms will not inform (pre-announce to) consumers about the impending arrival of use-efficiency innovation; to minimize environmental harm, a sustainability advocate needs to inform consumers. Thus, contrary to conventional wisdom, consumer environmental sensitivity does not always substitute for the role of sustainability advocates. Our results clarify how to design win-win policies for firms and the environment; and when advocates have complementary/ adversarial roles relative to firms to achieve sustainability goals.

Keywords: Durable goods; Planned Obsolescence; Sustainability; Innovation; Environmental Costs (search for similar items in EconPapers)
Pages: 78 pages
Date: 2022-01
New Economics Papers: this item is included in nep-com, nep-env, nep-res and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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