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.

Sustainable Human Development

“…For instance, at the firms' level the tension between profit-maximizing objectives, wages consolidation, workers' dignity and environmental protection shapes the functional distribution of incomes of each entrepreneur (UNEP, 1995;Doni and Ricchiuti, 2013), directly affecting both individual and family well-being and, in aggregated terms, the territorial system for enabling human flourishing as a whole (see Figure 6.2). 7 If local firms view their workforce only as means of production (contributing to their vulnerability), or if they degrade the surrounding environment (env) for the sake of profit maximization within race-to-the-bottom processes of competition (profit π vs wages w), conflict would cause ruptures in social relations, whose final effects can be seen in the public expenditure required to repress social conflict and unrest and to mitigate poverty and exclusion (Picchio, 2013).…”