Is green consumerism beneficial to the environment and the economy? To shed light on this question, we study the political economy of environmental regulations in a model with neutral and green consumers where the latter derive some warm glow from buying a good of higher environmental quality produced by a profit-maximizing monopoly, while the good bought by neutral consumers is provided by a competitive fringe. Consumers unanimously vote for a standard set at a lower than first-best level, or for a tax delivering the first-best environmental protection level. Despite its under-provision of environmental protection, the standard dominates the tax from a welfare perspective due to its higher productive efficiency, i.e., a smaller gap between the environmental qualities of the two goods supplied. In stark contrast, voters unanimously prefer a tax to a standard when the willingness to pay for greener goods is small enough.
environmental regulation, corporate social responsibility, green consumerism, product differentiation, tax, standard, green label, political economy.;
- D24: Production • Cost • Capital • Capital, Total Factor, and Multifactor Productivity • Capacity
- D62: Externalities
- Q41: Demand and Supply • Prices
- Q42: Alternative Energy Sources
- Q48: Government Policy
TSE Working Paper, n. 20-1124, July 2020, revised July 2021