Economics of Governance

, Volume 17, Issue 2, pp 101–129 | Cite as

An excessive development of green products?

Original Paper

Abstract

This paper examines firms’ incentives to develop a new (green) product, which might compete against the pollutant (brown) good that they traditionally sell. We show that in equilibrium more than one firm might develop a green product, but such an equilibrium outcome is not necessarily efficient. In particular, we predict an excessive amount of green goods under certain conditions, namely, when the green product is extremely clean but both products are not sufficiently differentiated in their attributes, and when the green product is not significantly cleaner than the brown good. We finally provide policies that help regulatory authorities promote equilibrium outcomes yielding the highest social welfare.

Keywords

Excessive entry Product differentiation Pollution intensity Environmental damage 

JEL Classification

L12 D82 Q20 D62 

References

  1. Amachera G, Koskelac E, Ollikainend M (2004) Environmental quality competition and eco-labeling. J Environ Econ Manag 47(2):284–306CrossRefGoogle Scholar
  2. Andre F, Gonzalez P, Porteiro N (2009) Strategic quality competition and the Porter hypothesis. J Environ Econ Manag 57:182–194CrossRefGoogle Scholar
  3. Arora S, Gangopadhyay S (1995) Toward a theoretical model of voluntary overcompliance. J Econ Behav Organ 28:289–309CrossRefGoogle Scholar
  4. Bagnoli M, Watts SG (2003) Selling to socially responsible consumers: competition and the private provision of public goods. J Econ Manag Strategy 12(3):419–445CrossRefGoogle Scholar
  5. Baron D (2001) Private Politics, corporate social responsibility and integrated strategy. J Econ Manag Strategy 10:7–45CrossRefGoogle Scholar
  6. Baron D (2008) Managerial contracting and corporate social responsibility. J Public Econ 92:268–288CrossRefGoogle Scholar
  7. Besley T, Ghatak M (2007) Retailing public goods: the economics of corporate social responsibility. J Public Econ 91(9):1645–1663CrossRefGoogle Scholar
  8. Cason T, Gangadharan L (2002) Environmental labeling and incomplete consumer information in laboratory markets. J Environ Econ Manag 43:113–134CrossRefGoogle Scholar
  9. Dosi C, Moretto M (2001) Is ecolabelling a reliableenvironmental policy measure? Environ Resour Econ 18(1):113–127CrossRefGoogle Scholar
  10. Eaton BC, Lipsey RG (1979) The theory of market pre-emption: the persistence of excess capacity and monopoly in growing spatial markets. Economica 46(182):149–158CrossRefGoogle Scholar
  11. Espinola-Arredondo A, Zhao H (2012) Environmental policy in a linear-city model of product differentiation. Environ Dev Econ 17(4):461–477CrossRefGoogle Scholar
  12. Fudenberg D, Tirole J (1984) The fat-cat effect, the puppy-dog ploy, and the lean and hungry look. Am Econ Rev 74(2):361–366Google Scholar
  13. Greaker M (2006) Eco-labels, trade and protectionism. Environ Resour Econ 33:1–37CrossRefGoogle Scholar
  14. Hamilton SF, Zilberman D (2006) Green markets, eco-certification, and equilibrium fraud. J Environ Econ Manag 52(3):627–644CrossRefGoogle Scholar
  15. Ibanez L, Grolleau G (2008) Can ecolabeling schemes preserve the environment? Environ Resour Econ 40(2):233–249CrossRefGoogle Scholar
  16. Kirchhoff S (2000) Green business and blue angels: a model of voluntary overcompliance with asymmetric information. Environ Resour Econ 15(4):403–420CrossRefGoogle Scholar
  17. Lambertini L, Tampieri A (2012) Vertical differentiation in a Cournot industry: the Porter hypothesis and beyond. Resour Energy Econ 34:374–380CrossRefGoogle Scholar
  18. Lancaster K (1990) The economics of product variety: a survey. Mark Sci 9(3):189–206CrossRefGoogle Scholar
  19. Mankiw NG, Whinston MD (1986) Free entry and social inefficiency. RAND J Econ 17(1):48–58CrossRefGoogle Scholar
  20. Mason C (2006) An economic model of ecolabeling. Environ Model Assess 11(2):131–143CrossRefGoogle Scholar
  21. Schmalensee R (1978) Entry deterrence in the ready-to-eat breakfast cereal industry. Bell J Econ 9(2):305–327CrossRefGoogle Scholar
  22. Shaked A, Shutton J (1982) Relaxing price competition through product differentiations. Rev Econ Stud 49(1):3–13CrossRefGoogle Scholar
  23. Singh N, Vives X (1984) Price and quantity competition in a differentiated duopoly. Rand J Econ 15(4):546–554CrossRefGoogle Scholar
  24. Spence M (1975) Monopoly, quality and regulation. Bell J Econ 6(2):417–429CrossRefGoogle Scholar

Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

  • Ana Espínola-Arredondo
    • 1
  • Félix Muñoz-García
    • 2
  1. 1.School of Economic SciencesWashington State UniversityPullmanUSA
  2. 2.School of Economic SciencesWashington State UniversityPullmanUSA

Personalised recommendations