Pollution is a public bad. In neoclassical models, when economic agents face environmental externalities, individual rationality is not sufficient to create optimality. By supposing that consumers have an altruistic behavior, we reduce the non-optimality range and we find that a monopoly is socially more efficient with respect of the environment than a duopoly. When consumers do not perfectly distinguish the environmental characteristics of products, producers can adopt a green label to signal their "environmental friendly" output. But polluting firms can be induced to free-ride them. The paper analyzes various perfect Bayesian equilibria reflecting these behaviors.
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Paper provided by Toulouse - GREMAQ in its series Papers with number
96.439.
Find related papers by JEL classification: D64 - Microeconomics - - Welfare Economics - - - Altruism L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
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