Investment in cleaner technology and signaling distortions in a market with green consumers
AbstractI analyze the pricing and investment behavior of a firm that signals the environmental attributes of its production technology through its price to uninformed environmentally conscious consumers. I then analyze the effect of change in environmental regulation on the signaling outcome and the firm's ex ante incentive to invest in cleaner technology. When regulation is weak, a firm signals cleaner technology through higher price; in this case, the firm earns lower profit when it has cleaner technology and thus, has no incentive to invest in cleaner technology. The price charged by the clean firm declines sharply beyond a critical level of regulation. When regulation is sufficiently stringent, the firm with cleaner technology charges lower price but earns higher signaling profit, and ex ante the firm has positive incentive to invest in cleaner technology. With weak regulation, the incentive of the firm to directly disclose its environmental performance rather than signal it through price is increasing in the level of regulation; the opposite holds when regulation is sufficiently stringent.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Environmental Economics and Management.
Volume (Year): 64 (2012)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622870
Environmental consciousness; Environmental regulation; Incomplete information; Investment; Signaling;
Other versions of this item:
- Aditi Sengupta, 2011. "Investment in Cleaner Technology and Signaling Distortions in a Market with Green Consumers," Auburn Economics Working Paper Series auwp2011-10, Department of Economics, Auburn University.
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kyle Bagwell & Michael Riordan, 1988.
"High and Declining Prices Signal Product Quality,"
808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Emmanuel Petrakis & Eftichios S. Sartzetakis & Anastasios Xepapadeas, 2004.
"Environmental Information Provision as a Public Policy Instrument,"
0414, University of Crete, Department of Economics.
- Petrakis Emmanuel & Sartzetakis Eftichios Sophocles & Xepapadeas Anastasios, 2005. "Environmental Information Provision as a Public Policy Instrument," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-33, November.
- Sartzetakis, Eftichis & Xepapadeas, Anastasios & Petrakis, Emmanuel, 2008.
"The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally,"
12083, University Library of Munich, Germany.
- Eftichios S. Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, 2009. "The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally," Discussion Paper Series 2009_02, Department of Economics, University of Macedonia, revised Jan 2009.
- Eftichios Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, . "The role of information provision as a policy instrument to supplement environmental taxes: Empowering consumers to choose optimally," DEOS Working Papers 1012, Athens University of Economics and Business.
- Eftichios S. Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, 2009. "The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally," Working Papers 2009.46, Fondazione Eni Enrico Mattei.
- Toshihiro Uchida, 2007. "Information Disclosure Policies: When Do They Bring Environmental Improvements?," International Advances in Economic Research, Springer, vol. 13(1), pages 47-64, February.
- Hwang, Yun Jae & Roe, Brian E. & Teisl, Mario F., 2006. "Does Price Signal Quality? Strategic Implications of Price as a Signal of Quality for the Case of Genetically Modified Food," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association (IAMA), vol. 9(01).
- In-Koo Cho & David M. Kreps, 1997.
"Signaling Games and Stable Equilibria,"
Levine's Working Paper Archive
896, David K. Levine.
- Galarraga, Ibon & Markandya, Anil, 2004. "Economic techniques to estimate the demand for sustainable products: a case study for fair trade and organic coffee in the United Kingdom," Economia Agraria y Recursos Naturales, Spanish Association of Agricultural Economists, vol. 4(07).
- Lisette Ibanez & Gilles Grolleau, 2008. "Can Ecolabeling Schemes Preserve the Environment?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 233-249, June.
- Cesare Dosi & Michele Moretto, 2001.
"Is Ecolabelling a Reliable Environmental Policy Measure?,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 18(1), pages 113-127, January.
- Cesare Dosi & Michele Moretto, 1999. "Is Ecolabelling a Reliable Environmental Policy Measure?," Working Papers 1999.9, Fondazione Eni Enrico Mattei.
- Andrew F. Daughety & Jennifer F. Reinganum, 1994.
"Product Safety: Liability, R&D and Signaling,"
Game Theory and Information
9403007, EconWPA, revised 30 Mar 1994.
- Mahenc, Philippe, 2008. "Signaling the environmental performance of polluting products to green consumers," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 59-68, January.
- Bansal, Sangeeta & Gangopadhyay, Shubhashis, 2003. "Tax/subsidy policies in the presence of environmentally aware consumers," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 333-355, March.
- Mari Rege, 2000. "Strategic Policy and Environmental Quality: Helping the Domestic Industry to Provide Credible Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 279-296, March.
- Shiou Shieh, 1993. "Incentives for Cost-Reducing Investment in a Signalling Model of Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 466-477, Autumn.
- Philippe Mahenc, 2007. "Are green products over-priced?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 38(4), pages 461-473, December.
- Roger A. Sedjo & Stephen K. Swallow, 2002. "Voluntary Eco-Labeling and the Price Premium," Land Economics, University of Wisconsin Press, vol. 78(2), pages 272-284.
- Antelo, Manel & Loureiro, Maria L., 2009. "Asymmetric information, signaling and environmental taxes in oligopoly," Ecological Economics, Elsevier, vol. 68(5), pages 1430-1440, March.
- Teisl, Mario F. & Roe, Brian & Hicks, Robert L., 2002. "Can Eco-Labels Tune a Market? Evidence from Dolphin-Safe Labeling," Journal of Environmental Economics and Management, Elsevier, vol. 43(3), pages 339-359, May.
- Ramon Casadesus-Masanell & Michael Crooke & Forest Reinhardt & Vishal Vasishth, 2009. "Households' Willingness to Pay for "Green" Goods: Evidence from Patagonia's Introduction of Organic Cotton Sportswear," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 203-233, 03.
- Cremer, Helmuth & Thisse, Jacques-Francois, 1999.
"On the taxation of polluting products in a differentiated industry,"
European Economic Review,
Elsevier, vol. 43(3), pages 575-594, March.
- CREMER, Helmuth & THISSE, Jacques-François, . "On the taxation of polluting products in a differentiated industry," CORE Discussion Papers RP -1384, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Slađana Pavlinović, 2013. "Signalling Green Technology Through Price And Eco-Label," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 6, pages 87-94, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.