Economics of Governance

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

An excessive development of green products?

  • Ana Espínola-ArredondoEmail author
  • Félix Muñoz-García
Original Paper


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.


Excessive entry Product differentiation Pollution intensity Environmental damage 

JEL Classification

L12 D82 Q20 D62 


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Copyright information

© Springer-Verlag Berlin Heidelberg 2015

Authors and Affiliations

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

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