Are green innovators motivated by competition?
In this paper Aghion et al. examine how consumers’ environmental concerns and market competition affect firms’ decisions to innovate in “clean” technologies. They develop a simple model of innovation where agents care about both the level and the environmental footprint of their consumption, and analyze how these preferences together with market structure, affect the equilibrium amount of clean R&D, and through it aggregate pollution and welfare.
While the direct, short-run impact of competition on the environment is always negative –lower prices induce more consumption and therefore more pollution– it can also encourage clean innovation as a means of product differentiation. Intuitively, firms will seek to develop greener products when facing more environmentally motivated customers, and the more so, the harder they must compete for them. Due to its offsetting quantity and quality effects, the impact of competition on emissions has a concave profile. As consumer’s environmental preferences and competition are complements, more prosocial consumers make increases in competition less environmentally costly by leading to increase in green R&D. They test their theory using panel data on patents by 8,562 automobile-sector firms in 41 countries, environmental willingness-to-pay, and competition.
[O]ur empirical analysis suggests that the combination of realistic increases in prosocial attitudes and in product market competition can have the same effect on green innovation as a 34% increase in fuel prices worldwide.
How Do (Green) Innovators Respond to Climate Change Scenarios? Evidence from a Field Experiment
Authors: Jorge Guzman, Jean Joohyun Oh, Ananya Sen
From: Columbia University, Carnegie Mellon University
