Socially responsible investment in an environmental overlapping generations model

Lammertjan Dam

Resource and Energy Economics, 2011, vol. 33, issue 4, 1015-1027

Abstract: One of the problems associated with the conservation of the environment is that short-lived individuals fail to account for the long-term effects of pollution, which implies that future generations bear the costs imposed by the current generation. Such inter-generational externalities are usually tackled by (Pigovian) taxes, fiscal policy or environmental regulation. Alternatively, we propose that socially responsible investment funds create a role for the stock market to deal with intergenerational environmental externalities. We analyze the role of the stock market in an environmental overlapping generations model of the Diamond-type, in which agents choose between investing in “clean” government bonds or “polluting” firm equity. We show that although socially responsible investors are short-lived, the forward-looking nature of stock prices can help to resolve the conflict between current and future generations.

Keywords: Overlapping generations; Environmental quality; Socially responsible investment; Corporate social responsibility; Sustainability; Stock market (search for similar items in EconPapers)
JEL-codes: D11 D21 D62 Q01 Q20 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:33:y:2011:i:4:p:1015-1027

DOI: 10.1016/j.reseneeco.2010.08.002

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