Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?
- American Economic Review: Insights (Forthcoming)
We investigate the effects of consumers' environmental concerns and market
competition on firms' decisions to innovate in "clean" technologies. Agents care
about their consumption and environmental footprint; firms pursue greener products to soften price competition. Acting as complements, these forces determine R&D, pollution, and welfare. We test the theory using panel data on patents
by 7,060 automobile-sector firms in 25 countries, environmental willingness-to-pay, and competition. As predicted, exposure to prosocial attitudes fosters clean
innovation, all the more so where competition is strong. Plausible increases in
both together can spur it as much as a large fuel-price increase.
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