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Competitive Investment in Clean Technology and Uninformed Green Consumers

  • Aditi Sengupta

In a market where consumers 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 the 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 environmental regulation of firms in this setting. Compared to full information, incomplete information generates higher strategic incentive to invest in cleaner technology particularly when consciousness and/or regulation are not too high. Requiring mandatory disclosure of technology or environmental performance may discourage such investment. Even though consumers are uninformed, competition has a positive effect (relative to monopoly) on the incentive to invest.

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File URL: http://cla.auburn.edu/econwp/Archives/2012/2012-08.pdf
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Paper provided by Department of Economics, Auburn University in its series Auburn Economics Working Paper Series with number auwp2012-08.

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Date of creation: Nov 2012
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Handle: RePEc:abn:wpaper:auwp2012-08
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  1. Toshihiro Uchida, 2007. "Information Disclosure Policies: When Do They Bring Environmental Improvements?," International Advances in Economic Research, International Atlantic Economic Society, vol. 13(1), pages 47-64, February.
  2. Lisette Ibanez & Gilles Grolleau, 2008. "Can Ecolabeling Schemes Preserve the Environment?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 233-249, June.
  3. Alberto Cavaliere, 2000. "Overcompliance and Voluntary Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 17(2), pages 195-202, October.
  4. Gerhard Clemenz, 2010. "Eco-Labeling and Horizontal Product Differentiation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 45(4), pages 481-497, April.
  5. Emmanuel Petrakis & Eftichios S. Sartzetakis & Anastasios Xepapadeas, 2004. "Environmental Information Provision as a Public Policy Instrument," Working Papers 0414, University of Crete, Department of Economics.
  6. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
  7. José Moraga-González & Noemi Padrón-Fumero, 2002. "Environmental Policy in a Green Market," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 419-447, July.
  8. Cesare Dosi & Michele Moretto, 1999. "Is Ecolabelling a Reliable Environmental Policy Measure?," Working Papers 1999.9, Fondazione Eni Enrico Mattei.
  9. Mari Rege, 2000. "Strategic Policy and Environmental Quality: Helping the Domestic Industry to Provide Credible Information," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 15(3), pages 279-296, March.
  10. Klaus Conrad, 2005. "Price Competition and Product Differentiation When Consumers Care for the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 31(1), pages 1-19, 05.
  11. Anton, W.R.Q.Wilma Rose Q. & Deltas, George & Khanna, Madhu, 2004. "Incentives for environmental self-regulation and implications for environmental performance," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 632-654, July.
  12. Bansal, Sangeeta & Gangopadhyay, Shubhashis, 2003. "Tax/subsidy policies in the presence of environmentally aware consumers," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 333-355, March.
  13. Eftichios S. Sartzetakis & Anastasios Xepapadeas & Emmanuel Petrakis, 2009. "The Role of Information Provision as a Policy Instrument to Supplement Environmental Taxes: Empowering Consumers to Choose Optimally," Working Papers 2009.46, Fondazione Eni Enrico Mattei.
  14. Maarten C.W. Janssen & Santanu Roy, 2007. "Signaling Quality Through Prices in an Oligopoly," Departmental Working Papers 0709, Southern Methodist University, Department of Economics, revised Nov 2008.
  15. Roger A. Sedjo & Stephen K. Swallow, 2002. "Voluntary Eco-Labeling and the Price Premium," Land Economics, University of Wisconsin Press, vol. 78(2), pages 272-284.
  16. Eriksson, Clas, 2004. "Can green consumerism replace environmental regulation?--a differentiated-products example," Resource and Energy Economics, Elsevier, vol. 26(3), pages 281-293, September.
  17. Shiou Shieh, 1993. "Incentives for Cost-Reducing Investment in a Signalling Model of Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 466-477, Autumn.
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