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Competitive investment in clean technology and uninformed green consumers

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  • Sengupta, Aditi

Abstract

In a market where consumers and the regulatory authorities are not fully informed about the actual production technology or environmental performance of firms that engage in strategic competition, I study the effect of environmental consciousness of consumers on firms׳ incentive to invest in cleaner technology. Firms compete in prices and may signal their environmental performance to uninformed consumers through prices. I also analyze the effect of an expected liability on firms in this setting. Compared to full information, incomplete information generates higher strategic incentive to invest in cleaner technology particularly when consciousness and/or expected liability are not too high. Requiring mandatory disclosure of technology or environmental performance may discourage such investment. Even though consumers and the regulator are uninformed, competition has a positive effect (relative to monopoly) on the incentive to invest.

Suggested Citation

  • Sengupta, Aditi, 2015. "Competitive investment in clean technology and uninformed green consumers," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 125-141.
  • Handle: RePEc:eee:jeeman:v:71:y:2015:i:c:p:125-141
    DOI: 10.1016/j.jeem.2015.03.001
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    References listed on IDEAS

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    Cited by:

    1. repec:gam:jgames:v:8:y:2017:i:3:p:39-:d:111882 is not listed on IDEAS
    2. Nigar Hashimzade & Gareth Donald Myles, 2017. "Do Corporate Environmental Contributions Justify the Public Interest Defence?," CESifo Working Paper Series 6755, CESifo Group Munich.
    3. Aditi Sengupta, 2016. "Green Premium, Ecolabel, and Environmental Damage," Auburn Economics Working Paper Series auwp2016-16, Department of Economics, Auburn University.
    4. repec:bpj:bejeap:v:17:y:2017:i:2:p:9:n:8 is not listed on IDEAS
    5. Li, Yuanhao & van 't Veld, Klaas, 2015. "Green, greener, greenest: Eco-label gradation and competition," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 164-176.

    More about this item

    Keywords

    Duopoly; Environmental consciousness; Environmental regulation; Incomplete information; Investment; Mandatory disclosure; Signaling;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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