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Overcoming the barriers to the market performance of green consumer goods

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  • Kaufman, Noah

Abstract

Environmentally-friendly (“green”) products face a unique set of market barriers. I develop a dynamic model of observational learning and costly search wherein a green consumer product enters a market to challenge an established “dirty” product. Purchase decisions depend on price and quality differences, consumers’ willingness-to-pay to protect the environment, and the cost of obtaining information. Using both theoretical analyses and simulations, I solve for the long-term market performance of the green product. Conditions are provided for when it is socially optimal to encourage green purchases with public policy. Comparative statics predict the effectiveness of various policy tools used to improve market performance. Permanent financial incentives are shown to be more effective than informational campaigns at encouraging green purchases if the green product is inferior to the dirty substitute. Temporary financial incentives are shown to be an ineffective tool to encourage the long-term market success of any green product. Numerical market simulations are used to test and supplement the theory.

Suggested Citation

  • Kaufman, Noah, 2014. "Overcoming the barriers to the market performance of green consumer goods," Resource and Energy Economics, Elsevier, vol. 36(2), pages 487-507.
    • Handle: RePEc:eee:resene:v:36:y:2014:i:2:p:487-507
    DOI: 10.1016/j.reseneeco.2013.05.007
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    Cited by:

    1. Ionela Corina Chersan & Valentin Florentin Dumitru & Cãtãlina Gorgan & Vasile Gorgan, 2020. "Green Public Procurement in the Academic Literature," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 22(53), pages 1-82, February.
    2. Cheung, Millissa F.Y. & To, W.M., 2019. "An extended model of value-attitude-behavior to explain Chinese consumers’ green purchase behavior," Journal of Retailing and Consumer Services, Elsevier, vol. 50(C), pages 145-153.
    3. Hamid Hamoudi & Carmen Avilés-Palacios, 2023. "Product Sustainability and Consumer Environmental Awareness in Differentiated Markets," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 29(4), pages 277-291, November.
    4. Liobikienė, Genovaitė & Mandravickaitė, Justina & Bernatonienė, Jurga, 2016. "Theory of planned behavior approach to understand the green purchasing behavior in the EU: A cross-cultural study," Ecological Economics, Elsevier, vol. 125(C), pages 38-46.
    5. Burani, Nadia & Mantovani, Andrea, 2024. "Environmental policies with green network effect and price discrimination," TSE Working Papers 24-1513, Toulouse School of Economics (TSE).
    6. Changxin Xu & Lihua Yang & Bin Zhang & Min Song, 2021. "Bargaining power and information asymmetry in China’s water market: an empirical two-tier stochastic frontier analysis," Empirical Economics, Springer, vol. 61(5), pages 2395-2418, November.
    7. Hamid Hamoudi & Carmen Avilés-Palacios, 2022. "Awareness Campaigns in a Horizontally Differentiated Market with Environmentally Conscious Consumers, Private Versus Public Duopoly," IJERPH, MDPI, vol. 19(19), pages 1-21, October.
    8. Burani, Nadia & Mantovani, Andrea, 2020. "Non-linear pricing and conscious consumption," International Journal of Industrial Organization, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Green consumer products; Observational learning; Environmental policy; Financial incentives; Informational campaigns;
    All these keywords.

    JEL classification:

    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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