Green investors and the return on capital in general equilibrium

Sijmen Duineveld, Christoph Hambel and Kai Lessmann

Economics Letters, 2025, vol. 247, issue C

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; Impact investing; OLG model (search for similar items in EconPapers)
JEL-codes: D58 Q5 Q54 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176524006335
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176524006335

DOI: 10.1016/j.econlet.2024.112149

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().