This project's core goal is to study how the supply of environmentalism affects the way firms and consumers choose their products and the ensuing consequences for the global level of pollution and social welfare of the economy. It is well known that various goods satisfying the same needs have different ecological footprints. They are (or are not) biodegradable, they can (or cannot) be recycled, and they use (or do not use) reduced packaging and low energy. Deeply embedded in most debates is the view that changes in consumers' behavior are a necessary (and, perhaps, sufficient) condition for a transition to a cleaner society to be doable. Accordingly, by inciting consumers to shift from polluting to less-polluting products, a deep individual and social environmental consciousness would spark a major drop in the mass of pollutants generated by consumption. This argument, though seemingly convincing, overlooks several important aspects of the problem. Firstly, a higher level of environmental awareness within the population affects consumers' willingness-to-pay, hence the incentives firms face when they choose their product characteristics, which may not have the expected consequences for the environment. Secondly, other actors influence the interaction between consumers and firms: these are non-governmental organizations and social media lobbying in various ways for a wide set of issues, including the environment.
Our project aims at looking at the delicate interaction between firms, consumers and non-governmental organizations and evaluate their capacity to reduce pollution.
In this project we aim to contribute in developing an approach that differs from the existing literature in several fundamental respects. That is, the product object of the analysis is characterized by two characteristics, namely an intrinsic attribute, which is given by the environmental quality of the products chosen by firms, and an extrinsic one, which is related to the supply of environmentalism within the public sphere, the value of which is determined on the market for ideas where activists, lobbies and media interact. Central to our setting is that the intrinsic attribute is chosen by firm whereas the extrinsic attribute is given to the firms. Equally important, consumers are heterogeneous in their attitude toward environmentalism in that they are characterized by specific psychic costs and benefits. Indeed, it is reasonable to assume that different individuals subscribe more or less to a value system, here environmentalism. The psychic benefit associated with the consumption of the green product --the consumer is a member of the reference group-- whereas the psychic cost she bears for consuming brown --she does not belong to the reference group-- are consumer-specific. Environmentalism thus influences consumers but to an extend that varies across consumers. Consequently, the supply of environmentalism affects the market outcome in ways that are not easy to predict.
Furthermore, an important addition of our project is the study of the interaction between consumers, firms and environmental organizations in a single setting.
It is well known as environmental activists have become an important voice in public and private politics, urging governmental and corporate responses to ongoing environmental damage (e.g. Eyes and King, 2018 for a survey). The tools of game theory can be applied in the tradition of IO to throw light on the ways in which activist NGOs should act in pursuit of environmental objectives. This type of theoretical analyses can provide testable hypotheses.
The study of the coordination between NGOs and between NGOs and their external stakeholders (such as donors) looks currently a fruitful research area (e. g. Aldashev, Marini and Verdier, 2014 and 2020) and can be applied to the study of the effect of activism and of the interplay between environmentalism, consumption behavior and environmental damage.
References:
Aldashev, G., Verdier, T. (2010). Goodwill bazaar: NGO competition and giving to development. Journal of Development Economics, 91, 48-63.
Aldadshev, G., Marini, M., Verdier, T. (2020), "Samarithan Bundles: Fundrasing Competition and Inefficient Clustering in NGO Projects", Economic Journal, 1-59, doi: 10.1093/ej/ueaa031
Aldadshev, G., Marini, M., Verdier, T. (2014) "Brothers in Alms? Coordination between Nonprofits on Markets for Donations", Journal of Public Economics, 117, 182-200.
Heyes, A., B. King (2018) "Understanding the Organization of Green Activism: Sociological and Economic Perspectives", Organization & Environment, July, https://doi.org/10.1177/1086026618788859.
Heyes, A., Rickman, N. (1999). Regulatory dealing: Revisiting the Harrington paradox. Journal of Public Economics, 72, 361-378.