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Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?

Author

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  • Philippe Aghion
  • Roland Bénabou
  • Ralf Martin
  • Alexandra Roulet

Abstract

We investigate the effects of consumers' environmental concerns and market competition on firms' decisions to innovate in "clean" technologies. Agents care about their consumption and environmental footprint; firms pursue greener products to soften price competition. Acting as complements, these forces determine R&D, pollution, and welfare. We test the theory using panel data on patents by 7,060 automobile sector firms in 25 countries, environmental willingness to pay, and competition. As predicted, exposure to prosocial attitudes fosters clean innovation, all the more so where competition is strong. Plausible increases in both together can spur it as much as a large fuel price increase.

Suggested Citation

  • Philippe Aghion & Roland Bénabou & Ralf Martin & Alexandra Roulet, 2023. "Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?," American Economic Review: Insights, American Economic Association, vol. 5(1), pages 1-20, March.
    • Handle: RePEc:aea:aerins:v:5:y:2023:i:1:p:1-20
    DOI: 10.1257/aeri.20210014
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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