Environmental vs hedonic quality: which policy can help in lowering pollution emissions?

Abstract

ABSTRACT. In this paper we compare two policy instruments that can be adopted to curb carbon emissions. The first is a conventional pollution tax, the second is an environmental campaign raising consumers' awareness about the relative impact of their consumption choices. The comparison is carried out in two different scenarios, depending on whether consumers' aprioristic preferences are such that they value the environmental attribute of a product (environmental quality) or its pure performance (hedonic quality) . In the case of environmental quality, the campaign is preferred under some specific conditions based on consumer heterogeneity, cost-effective analysis, and pollution level. On the contrary, the pollution tax is always preferred in the case of hedonic quality. Therefore, we show that the relative efficiency of the two policy instruments crucially depends on consumers' initial concern for the environment, which may vary across countries due to socio-economic conditions.

Which is the relationship between the product’s environmental criteria and the product demand? Evidence from the French food sector

“…This subsection describes the environmental criteria related to green practices and organisation strategies that can improve the environmental quality of a product that have been found in the literature. (Gupta & Palsule-Desai, 2011) (Mantovani & Vergari, 2017) define practices that improve the product's environmental quality as the practices that aims to the reduction of emissions and of the amount of waste generated or disposed, and to increase the energy efficiency. Besides, (Nouira, 2013a) states that product's environmental quality is linked to carbon emissions from transport activities; as well as to the emission rates generated by selected production process.…”

“…These attributes are divided according to consumer perception by (Deltas & Ramirez, 2004) in vertical and horizontal. The "vertical" attributes are related to decisions that influence the technical characteristics of the product (such as design decisions that influence the environmental impact through the product lifecycle) and the "horizontal" attributes, which are related to decisions that influence the environmental image of the product (Gupta & Palsule-Desai, 2011); (Nouira, 2013a), (Brécard, 2014); (Mantovani & Vergari, 2017). For instance, the selection of manufacturing processes (clean or dirty technologies) influences the level of carbon emission and energy consumption during production.…”

Environmental quality and monopoly pricing

“…Part (ii) says that the natual property that higher quality leads to higher demand amounts to having the marginal utility of the good increasing in its quality, i.e, that consumption and quality are (Edgeworth) complements in the utility function. 24 The meaning of condition (15) directly on the utility function is as follows. It holds if and only if marginal utility U q satisfies the gross complements condition from standard consumer theory (see e.g., Amir and Bloch, 2009 for an overview) with respect to quantity and quality.…”

Relative Tax in a Vertically Differentiated Market: The Key Role of Consumers in Environment

“…29 Thus, the net effect on global emissions depends on the relative contribution of every component. 30 In particular, only when a Government plans a massive fiscal intervention (t ≥t) in a country where the green producer is not so environmentally virtuous, then a relative subsidy should be preferred over a relative tax from an environmental viewpoint, since the former would reduce emissions more than the latter. In this case however, there exists a trade-off between advancements in green technologies and emissions abatement: the subsidy is more effective only with respect to latter goal while being dominated by the tax with respect to the other.…”

“…It immediately follows that, ceteris paribus, some consumers, buying under tax the green variant, prefer to buy under subsidy the dirty variant with an immediate expansion of the equilibrium market share for the dirty producer. 30 The incentive to improve the quality of the dirty variant is always higher under a relative tax than under a relative subsidy. Accordingly, ceteris paribus, the damage determined by the brown producer is by far less significant in the case of tax than in the alternative scenario with the subsidy.…”