Firms intrinsic motivation and environmentalism: Blessing or burden?

This paper analyzes the implications of firms' intrinsic valuation for pro- environmental production on technology adoption and signaling outcome when adopting a costly pollution-free technology does not favour profit despite consumers' higher willingness to pay for the environment-friendly product. As growing environmental awareness makes individuals and businesses increasingly cognizant of the ramifications of their actions, acting pro-environmentally engenders feelings of contentment and boosts self-image. We find that, while under symmetric information the intrinsically motivated firm optimally adopts pollution-free production, under asymmetric information the same is true only when consumers are sufficiently generous for or incredulous regarding pro-environmental behaviour, such that signaling is feasible. Although the signaling outcome is environmentally desirable, firms face challenges in balancing environmental objectives with profit goals when information is asymmetric. We suppose post-production subsidization to buttress ethical initiatives of firms and show cost-equivalence of lumpsum and per-unit subsidy schemes.