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Environmental preferences and technological choices: is market competition clean or dirty?

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Listed:
  • Philippe Aghion
  • Roland Bénabou
  • Ralf Martin
  • Alexandra Roulet

Abstract

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.

Suggested Citation

  • Philippe Aghion & Roland Bénabou & Ralf Martin & Alexandra Roulet, 2020. "Environmental preferences and technological choices: is market competition clean or dirty?," CEP Discussion Papers dp1684, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1684
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    References listed on IDEAS

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    1. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-166, February.
    2. Philippe Aghion & Antoine Dechezleprêtre & David Hémous & Ralf Martin & John Van Reenen, 2016. "Carbon Taxes, Path Dependency, and Directed Technical Change: Evidence from the Auto Industry," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 1-51.
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    More about this item

    Keywords

    environment; product market competition; innovation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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