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An excessive development of green products?

Ana Espinola-Arredondo () and Felix Munoz-Garcia ()

Economics of Governance, 2016, vol. 17, issue 2, 101-129

Abstract: Abstract This paper examines firms’ incentives to develop a new (green) product, which might compete against the pollutant (brown) good that they traditionally sell. We show that in equilibrium more than one firm might develop a green product, but such an equilibrium outcome is not necessarily efficient. In particular, we predict an excessive amount of green goods under certain conditions, namely, when the green product is extremely clean but both products are not sufficiently differentiated in their attributes, and when the green product is not significantly cleaner than the brown good. We finally provide policies that help regulatory authorities promote equilibrium outcomes yielding the highest social welfare.

Keywords: Excessive entry; Product differentiation; Pollution intensity; Environmental damage (search for similar items in EconPapers)
JEL-codes: L12 D82 Q20 D62 (search for similar items in EconPapers)
Date: 2016
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