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Responsible Investment and Responsible Consumption

Author

Listed:
  • Hendrik Hakenes

    (Institute for Financial Economics and Statistics, University of Bonn, ECONtribute, and CEPR)

  • Eva Schliephake

    (Universidade Catolica Portuguesa, Catolica Lisbon School of Business & Economics, Portugal)

Abstract

To reduce a negative externality, socially responsible households can invest responsibly (SRI), consume responsibly (SRC), or do both. Which is better? In a closed microeconomic model with intertwined product and capital markets, we analyze how responsible households should use SRI and SRC to maximize their impact. Both strategies reduce the externality as long as investors are risk-averse and the products have no perfect substitutes. Responsible households gain the highest impact when using SRC in equal proportion to SRI. A mere focus on SRC is never efficient. SRI plays a role in any green strategy. The financial performance of green investments is determined by the responsible households' mix between SRI and SRC.

Suggested Citation

  • Hendrik Hakenes & Eva Schliephake, 2021. "Responsible Investment and Responsible Consumption," ECONtribute Discussion Papers Series 134, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:134
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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_134_2021.pdf
    File Function: First version, 2021
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    References listed on IDEAS

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    Cited by:

    1. Krahnen Jan & Rocholl Jörg & Thum Marcel, 2023. "A Primer on Green Finance: From Wishful Thinking to Marginal Impact," Review of Economics, De Gruyter, vol. 74(1), pages 1-19, April.
    2. Krahnen, Jan Pieter & Rocholl, Jörg & Thum, Marcel, 2021. "A primer on green finance: From wishful thinking to marginal impact," SAFE White Paper Series 87, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Socially responsible investment (SRI); ethical investment; socially responsible consumption (SRC); sustainable investment; sustainable consumption; green investment; divestment; ESG; SPI;
    All these keywords.

    JEL classification:

    • D16 - Microeconomics - - Household Behavior - - - Collaborative Consumption
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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