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Socially responsible investment in an environmental overlapping generations model

  • Dam, Lammertjan

One of the problems associated with the conservation of the environment is that short-lived individuals fail to account for the long-term effects of pollution, which implies that future generations bear the costs imposed by the current generation. Such inter-generational externalities are usually tackled by (Pigovian) taxes, fiscal policy or environmental regulation. Alternatively, we propose that socially responsible investment funds create a role for the stock market to deal with intergenerational environmental externalities. We analyze the role of the stock market in an environmental overlapping generations model of the Diamond-type, in which agents choose between investing in “clean” government bonds or “polluting” firm equity. We show that although socially responsible investors are short-lived, the forward-looking nature of stock prices can help to resolve the conflict between current and future generations.

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Article provided by Elsevier in its journal Resource and Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 4 ()
Pages: 1015-1027

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Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:1015-1027
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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