Environmental Policy with Green Consumerism

Stefan Ambec and Philippe De Donder

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Abstract: We analyze environmental policy in a model where some consumers (dubbed green) derive warm glow from buying a good of a higher environmental quality, and where green firms differentiate products on their environmental quality to enjoy market power. For any given pollution level, emission taxes turn out to be less cost-effective than an emission standard because taxation always induces a higher wedge between the environmental qualities of products. By stark contrast, consumers prefer taxes to standards when the warm glow intensity is not too large. Also, the ability of green firms to exert market power makes the tax less attractive to green consumers. When the pollution level is endogenized via majority voting, both neutral and green consumers vote in favor of laxer standards and therefore pollution is higher compared to the case of nondifferentiated products. By contrast, the majority chosen tax induces the efficient level of pollution. Green consumerism reduces environmental protection with standards but not with taxes.

Keywords: Political economy; Green label; Standard; Tax; Product differentiation; Green consumerism; Corporate social responsibility; Environmental regulation (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-cdm, nep-ene and nep-env
Note: View the original document on HAL open archive server: https://hal.science/hal-03429506v1
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Citations: View citations in EconPapers (5)

Published in Journal of Environmental Economics and Management, inPress

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Related works:
Journal Article: Environmental policy with green consumerism (2022)
Working Paper: Environmental policy with green consumerism (2022)
Working Paper: Environmental policy with green consumerism (2022)
Working Paper: Environmental Policy with Green Consumerism (2021)
Working Paper: Environmental Policy with Green Consumerism (2020)
Working Paper: Environmental Policy with Green Consumerism (2020)
Working Paper: Environmental Policy with Green Consumerism (2020)
Working Paper: Environmental Policy with Green Consumerism (2020)
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