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Environmental Policy with Green Consumerism

Stefan Ambec and Philippe De Donder ()

No 49, EconPol Working Paper from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Is green consumerism beneficial to the environment and the economy? To shed light on this question, we study the political economy of environmental regulations in a model with neutral and green consumers where the latter derive some warm glow from buying a good of higher environmental quality produced by a profit-maximizing monopoly, while the good bought by neutral consumers is provided by a competitive fringe. Consumers unanimously vote for a standard set at a lower than first-best level, or for a tax delivering the first-best environmental protection level. Despite its under-provision of environmental protection, the standard dominates the tax from a welfare perspective due to its higher productive efficiency, i.e., a smaller gap between the environmental qualities of the two goods supplied. In stark contrast, voters unanimously prefer a tax to a standard when the willingness to pay for greener goods is small enough.

Date: 2020
New Economics Papers: this item is included in nep-ene and nep-env
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Working Paper: Environmental Policy with Green Consumerism (2020) Downloads
Working Paper: Environmental Policy with Green Consumerism (2020) Downloads
Working Paper: Environmental Policy with Green Consumerism (2020) Downloads
Working Paper: Environmental Policy with Green Consumerism (2020) Downloads
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