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Environmental policy in a differentiated market with a green network effect

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  • Dorothée Brécard

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

Abstract

We examine the impact of a "green network effect" in a market characterized by consumers' environmental awareness and competition between firms in both environmental quality and product prices. The unique aspect of this model comes from the assumption that an increase in the number of consumers of the green product increases the satisfaction of each green consumer. We show that this externality raises the consumption of the green product, reduces the environmental quality of products and improves welfare, even if it doesn't affect the overall level of pollution. The externality correction requires using three optimal fiscal policies: an ad valorem tax on products, an emission tax, and a subsidy of the green purchase. A second-best optimum can also be reached through the green taxation.

Suggested Citation

  • Dorothée Brécard, 2009. "Environmental policy in a differentiated market with a green network effect," Working Papers hal-00442460, HAL.
    • Handle: RePEc:hal:wpaper:hal-00442460
    Note: View the original document on HAL open archive server: https://hal.science/hal-00442460
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