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Market Structure and the Environment

Paper Session

Saturday, Jan. 5, 2019 8:00 AM - 10:00 AM

Atlanta Marriott Marquis, M202
Hosted By: Association of Environmental and Resource Economists
  • Chair: Carolyn Fischer, Resources for the Future

Component-free Strategy of Firms under Pressure from the NGOs

Dorothée Brécard
,
University of Toulon
Mireille Chiroleu-Assouline
,
Paris School of Economics

Abstract

There is a growing pressure of NGOs on firms to have them eliminate a component (as oil
palm) harmful for the environment (as rainforests) from their products or to replace such a
component with a sustainable substitute component the NGO certifies. Under which
conditions NGO’s pressure leads a firm to eliminate basic component in its product or,
alternatively, to substitute a damaging component with the certified sustainable component?
What are the ensuing effects on market structure?
This paper addresses these issues using a model of two-dimensional vertical product
differentiation. We assume that consumers have heterogeneous preferences for the
environmental quality but homogeneous preferences for the organoleptic quality. Using this
original framework, we show how consumers’ relative willingness-to-pay for environmental
quality and for organoleptic quality play a crucial role in efficiency of NGO campaign. The
cost structures of elimination of the harmful component and of its replacement by a
substitutable component also condition the effectiveness of the NGO campaign.
Moreover we extend our analysis of the strategies used by the NGO to fulfill its objective
by considering the possibility for the NGO to directly influence the consumers environmental
awareness through an information campaign on top of their disclosure campaign about the
harmfulness of the component, and also to certify another component, less harmful for the
environment.
We show that the NGO may waive the objective of achieving a market where only the least
environmentally harmful product is offered, when the cost of developing such a product is
very high, and may prefer to restrict the market share of this product by favouring the entry of
a new competitor with a product using the certified component.

Private Politics and Market Mediation

Jacqueline Doremus
,
California Polytechnic State University
Steve Hamilton
,
California Polytechnic State University
Timothy Richards
,
Arizona State University

Abstract

Private politics, or consumer activism, has proven effective in changing the behavior of private economic agents. In many markets, however, intermediaries stand between the consumer and the target of the activism, potentially reducing the effectiveness of private political action. We examine this effect for a recent consumer boycott of microbeads in the US toothpaste market. Relative to non-beaded toothpaste products, we demonstrate that consumer demand for microbeaded toothpaste decreased during the boycott period, but became more elastic, prompting retailers to o er selective price discounts on microbeaded toothpaste products. As a result, the equilibrium quantity of microbeaded toothpaste sold by retailers increased in the period immediately following the boycott.

Demanding Innovation: The Impact of Consumer Subsidies on Solar Panel Production Costs

Todd Gerarden
,
Cornell University

Abstract

This paper analyzes the impacts of consumer subsidies in the global market for solar
panels. Consumer subsidies can have at least two effects. First, subsidies shift out
demand and increase equilibrium quantities, holding production costs fixed. Second,
subsidies may encourage firms to innovate to reduce their costs over time. I quantify
these impacts by estimating a dynamic structural model of competition among solar
panel manufacturers. The model produces two key insights. First, ignoring long-run
supply responses can generate biased estimates of the effects of government policy.
Without accounting for induced innovation, subsidies increased global solar adoption
49 percent over the period 2010-2015, leading to over $15 billion in external social
benefits. Accounting for induced innovation increases the external benefits by at
least 22 percent. Second, decentralized government intervention in a global market
is inefficient. A subsidy in one country increases long-run solar adoption elsewhere
because it increases investment in innovation by international firms. This spillover
underscores the need for international coordination to address climate change.

The Internal and External Costs of Renewable Intermittency

Mar Reguant
,
Northwestern University
Lola Segura
,
Northwestern University

Abstract

The social value of wind has been estimated in the economic literature as the
value of emissions offset. However, variable renewable energy adds additional
integration costs due to intermittency that need to be accounted for to design the optimal
generation mix. This paper analyzes how integration costs affect the social value of wind.
First, we propose a model that captures the interaction between market design and
integration costs of renewables. We define two types of integration costs: external and
internal. External costs are charged to final consumers as part of operational costs and are
mostly due to variation in wind generation across hours. Internal costs are accounted for
by firms when making their decisions and they penalize last-minute imbalances. Second,
using data from the Iberian Electricity Market, we provide empirical evidence for both
internal and external costs for different levels of wind generation.
Discussant(s)
Carolyn Fischer
,
Resources for the Future
Jay Shimshack
,
University of Virginia
Jackson Dorsey
,
Indiana University
Richard Sweeney
,
Boston College
JEL Classifications
  • Q5 - Environmental Economics
  • L5 - Regulation and Industrial Policy