Overcoming the barriers to the market performance of green consumer goods

Noah Kaufman

Resource and Energy Economics, 2014, vol. 36, issue 2, 487-507

Abstract: Environmentally-friendly (“green”) products face a unique set of market barriers. I develop a dynamic model of observational learning and costly search wherein a green consumer product enters a market to challenge an established “dirty” product. Purchase decisions depend on price and quality differences, consumers’ willingness-to-pay to protect the environment, and the cost of obtaining information. Using both theoretical analyses and simulations, I solve for the long-term market performance of the green product. Conditions are provided for when it is socially optimal to encourage green purchases with public policy. Comparative statics predict the effectiveness of various policy tools used to improve market performance. Permanent financial incentives are shown to be more effective than informational campaigns at encouraging green purchases if the green product is inferior to the dirty substitute. Temporary financial incentives are shown to be an ineffective tool to encourage the long-term market success of any green product. Numerical market simulations are used to test and supplement the theory.

Keywords: Green consumer products; Observational learning; Environmental policy; Financial incentives; Informational campaigns (search for similar items in EconPapers)
JEL-codes: L1 Q2 Q5 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:36:y:2014:i:2:p:487-507

DOI: 10.1016/j.reseneeco.2013.05.007

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