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Green Markets and Private Provision of Public Goods

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Abstract

This paper develops a general model of private provision of a public good that includes the option to consume an impure public good. I use the model to investigate positive and normative consequences of “green markets.” Green markets give consumers a new choice: instead of simply consuming a private good and making a donation to an environmental public good, consumers can purchase an impure public good that produces characteristics of both activities jointly. Many governments, nongovernmental organizations, and industries promote green markets as a decentralized mechanism of environmental policy. Nevertheless, I show that under quite reasonable assumptions, green markets can have detrimental e€ects on both environmental quality and social welfare. I then derive conditions that are su¢cient to rule out such unintended consequences. The analysis applies equally to non-environmental choice settings where the joint products of an impure public good are also available separately. Such choice settings are increasingly prevalent in the economy, with impure public goods ranging from socially-responsible investments to commercial activities associated with charitable fund-raising.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2003-05.

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Date of creation: Apr 2003
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Publication status: published in Journal of Political Economy, August 2006, v. 114, iss. 4, pp. 816-34
Handle: RePEc:wil:wileco:2003-05

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Keywords: Public Goods;

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  1. Cornes,Richard & Sandler,Todd, 1996. "The Theory of Externalities, Public Goods, and Club Goods," Cambridge Books, Cambridge University Press, number 9780521477185, Fall.
  2. Cornes, Richard & Sandler, Todd, 1984. "Easy Riders, Joint Production, and Public Goods," Economic Journal, Royal Economic Society, vol. 94(375), pages 580-98, September.
  3. Bergstrom, Theodore & Blume, Lawrence & Varian, Hal, 1986. "On the private provision of public goods," Journal of Public Economics, Elsevier, vol. 29(1), pages 25-49, February.
  4. Riber, D.C. & Wilhelm, M.O., 1996. "Altruistic and Joy-of-Giving Motivations in Charitable Behavior," Papers 1-96-4, Pennsylvania State - Department of Economics.
  5. Cornes, Richard & Sandler, Todd, 1994. "The comparative static properties of the impure public good model," Journal of Public Economics, Elsevier, vol. 54(3), pages 403-421, July.
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