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The Environmental and Macroeconomic Effects of Socially Responsible Investment

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Author Info
Lammertjan Dam ()
Ben J. Heijdra ()

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Abstract

We analyze the effects of socially responsible investment and public abatement on environmental quality and the economy in a continuous-time dynamic growth model featuring optimizing households and firms. Environmental quality is modelled as a renewable resource. Consumers can invest in government bonds or firm equity. Since investors feel partly responsible for environmental pollution when holding firm equity, they require a premium on the return to equity. We show that socially responsible investment behaviour by households partially offsets the positive effects on environmental quality of public abatement policies.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2349.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2349

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Related research
Keywords: socially responsible investment; economic growth; environmental economics; resource dynamics; stock market;

Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
M14 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Corporate Culture; Social Responsibility
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply (the Commons)

References listed on IDEAS
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    Other versions:
  2. Beltratti, Andrea, 2005. "Capital market equilibrium with externalities, production and heterogeneous agents," Journal of Banking & Finance, Elsevier, vol. 29(12), pages 3061-3073, December. [Downloadable!] (restricted)
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    Other versions:
  5. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July. [Downloadable!] (restricted)
    Other versions:
  6. Andreoni, James, 1990. "Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving?," Economic Journal, Royal Economic Society, vol. 100(401), pages 464-77, June. [Downloadable!] (restricted)
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  8. 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. [Downloadable!] (restricted)
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  10. Bengt Kriström & Tommy Lundgren, 2003. "Abatement investments and green goodwill," Applied Economics, Taylor and Francis Journals, vol. 35(18), pages 1915-1921, December. [Downloadable!] (restricted)
  11. Dam, Lammertjan, 2006. "Firm valuation in an environmental overlapping generations model," CCSO Working Papers 200601, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
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  13. Heinkel, Robert & Kraus, Alan & Zechner, Josef, 2001. "The Effect of Green Investment on Corporate Behavior," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 431-449, December. [Downloadable!]
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