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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.

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  • 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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    Cited by:

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    2. Yenipazarli, Arda, 2019. "Incentives for environmental research and development: Consumer preferences, competitive pressure and emissions taxation," European Journal of Operational Research, Elsevier, vol. 276(2), pages 757-769.
    3. Khanh Hoang, 2022. "Silent but deadly: Political corruption and voluntary ESG disclosure in the United States," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(7), pages 2775-2793, October.
    4. Sander Heinsalu, 2021. "Competitive pricing despite search costs when lower price signals quality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(1), pages 317-339, February.
    5. Anthony Heyes & Sandeep Kapur & Peter W. Kennedy & Steve Martin & John W. Maxwell, 2020. "But What Does It Mean? Competition between Products Carrying Alternative Green Labels When Consumers Are Active Acquirers of Information," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 7(2), pages 243-277.
    6. 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.
    7. Sander Heinsalu, 2019. "Price competition with uncertain quality and cost," Papers 1903.03987, arXiv.org, revised Apr 2019.
    8. Philippe Mahenc & Alexandre Volle, 2021. "Price Signaling and Quality Monitoring in Markets for Credence Goods," Working Papers hal-03098440, HAL.
    9. Uşar, Damla Durak & Denizel, Meltem & Soytaş, Mehmet Ali, 2019. "Corporate sustainability interactions: A game theoretical approach to sustainability actions," International Journal of Production Economics, Elsevier, vol. 218(C), pages 196-211.
    10. Dingzhong Feng & Lei Ma & Yangke Ding & Guanghua Wu & Ye Zhang, 2019. "Decisions of the Dual-Channel Supply Chain under Double Policy Considering Remanufacturing," IJERPH, MDPI, vol. 16(3), pages 1-20, February.
    11. Nigar Hashimzade & Gareth Donald Myles, 2017. "Do Corporate Environmental Contributions Justify the Public Interest Defence?," CESifo Working Paper Series 6755, CESifo.
    12. Dongdong Li, 2022. "Dynamic optimal control of firms' green innovation investment and pricing strategies with environmental awareness and emission tax," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(4), pages 920-932, June.
    13. Xing Li & Yongheng Fang & Fuzhou Luo, 2022. "A Study on the Willingness of Industrial Ecological Transformation from China’s Zero Waste Cities Perspective," IJERPH, MDPI, vol. 19(15), pages 1-21, July.
    14. Philippe Mahenc & Alexandre Volle, 2021. "Price Signaling and Quality Monitoring in Markets for Credence Goods," CEE-M Working Papers hal-03098440, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    15. Yan, Yan & Li, Yi, 2023. "Regulation, external R&D, and strategic diffusion of pollution abatement technology," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 731-744.
    16. Wen, Wen & Zhou, P. & Zhang, Fuqiang, 2018. "Carbon emissions abatement: Emissions trading vs consumer awareness," Energy Economics, Elsevier, vol. 76(C), pages 34-47.
    17. Aditi Sengupta, 2016. "Green Premium, Ecolabel, and Environmental Damage," Auburn Economics Working Paper Series auwp2016-16, Department of Economics, Auburn University.
    18. Sengupta Aditi, 2017. "Information Acquisition and Disclosure of Environmental Risk," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(2), pages 1-9, April.
    19. 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.
    20. Guo, Jian-Xin & Zhu, Kaiwei, 2021. "Implications for enterprise to adopt cleaner technology: From the perspective of energy market and commodity market," Research in International Business and Finance, Elsevier, vol. 57(C).

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    More about this item

    Keywords

    Duopoly; Environmental consciousness; Environmental regulation; Incomplete information; Investment; Mandatory disclosure; Signaling;
    All these keywords.

    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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