Green Premium or Brown Discount? Evidence from Experimental Asset Markets

Peiran Jiao, Kees Koedijk and Yilong Xu

No 20646, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Sustainability preferences are often measured at the individual level. However, it is unclear whether individual sustainability preferences can manifest in a competitive asset market setting. To address this, we conduct a series of experiments, measuring sustainability preferences at both thei ndividual and market levels. In our market experiments, participants could accept lower payoffs for assets that yield positive externalities (green) compared to those with neutral (gray) or negative (brown) externalities. We observe a robust aversion to brown assets leading to significant underpricing (a “brown discount†), but find little evidence of a green premium. When we eliminate speculative motives, green assets’ prices are even closer to the fundamental value, suggesting that any observed green premium is likely driven by speculation but not sustainability preferences. Only incentivized measures of individual sustainability preferences, rather than stated preferences, significantly correlate with participants’ market behavior.

Keywords: Sustainability preference; Experimental asset markets; Green premium; Brown discount; Impact investment (search for similar items in EconPapers)
JEL-codes: C92 D81 G12 G14 (search for similar items in EconPapers)
Date: 2025-09
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