An Excessive Development of Green Products
This paper examines firms? incentives to develop a new (green) product,which might compete against the traditional pollutant (brown) product that the? firm sells. We show that in equilibrium more than one?firm might develop the green good, but such an equilibrium outcome is not necessarily efficient. In particular, we predict an excessive amount of green products under certain conditions, since fi?rms do not internalize the pro?fit loss that green goods entails on incumbent fi?rms.We? finally provide policies that help regulatory authorities promote socially optimal equilibrium outcomes.
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