Market equilibrium in the presence of green consumers and responsible firms: A comparative statics analysis

Abstract

SummaryThis paper analyzes how the interaction between green consumers and responsible firms affects the market equilibrium. The main result is that a higher responsibility by both producers and consumers can have different impacts on the efficiency of the firms' abatement activity, depending on the nature of the cleaning costs. When the abatement costs are fixed, the efficiency of the clean-up effort is always increasing in their degree of responsibility. On the other hand, when the abatement costs are variable, a higher level of responsibility may reduce social welfare. Finally, the first best allocation is never reached, even in the presence of the highest credible level of responsibility of both consumers and producers. Keywords February, 2011Abstract This paper analyzes how the interaction between green consumers and responsible firms affects the market equilibrium. The main result is that a higher responsibility by both producers and consumers can have different impacts on the efficiency of the firms' abatement activity, depending on the nature of the cleaning costs. When the abatement costs are fixed, the efficiency of the clean-up effort is always increasing in their degree of responsibility. On the other hand, when the abatement costs are variable, a higher level of responsibility may reduce social welfare. Finally, the first best allocation is never reached, even in the presence of the highest credible level of responsibility of both consumers and producers.

On Adverse Effects of Consumers’ Attaching Greater Importance to Firms’ Ethical Conduct

“…In this line of research, Eriksson ([9]), for example, is interested in whether or not green consumerism can actually replace regulation. Similar to our approach, Doni and Ricchiuti ( [10]) point out that very high consumer consciousness need not serve welfare. However, in their setup, this results from the possibility of an overprovision of environmental quality.…”

“…6 It is standard to assume that the product of the consumer's consciousness parameter and some attribute of firm conduct influences firm profits. For example, in [10,23], it is the consumer's weight on green features times the firm's emission abatement level. 7 The assumption that some agents cannot establish their type is also used in [15], for example.…”

Green Consumers, Greenwashing and the Misperception of Environmental Quality

“…In particular, given (15) together with (9), (13) and (14), it follows that, Proposition 1 Qualities, prices, quantities and pro…ts in equilibrium increase in the average misperception of environmental quality.…”

“…In our system, each consumer buys a variable quantity of both goods, whereas she buys a single unit of one good in the purely vertical di¤erentiation models. 13 In equilibrium, …rm i's prices and pro…ts are respectively,…”

“…Others would confuse the level of transparency when there are no speci…c criteria qualifying a product as green. 2 The bene…ts by appearing to be a green company come in the form of a higher stock price, more customers or favoured partnerships with green organisations (Doni and Ricchiuti, 2013). Thus paradoxically, higher prices are more easily understood by consumers with respect to other features, especially when comparing products and green investments across categories.…”