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

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  • Aghion, Philippe
  • Bénabou, Roland
  • Martin, Ralf
  • Roulet, Alexandra

Abstract

This paper investigates the joint effect of consumers' environmental concerns and product-market competition on firms’ decisions whether to innovate “clean” or “dirty”. We first develop a step-bystep innovation model to capture the basic intuition that socially responsible consumers induce firms to escape competition by pursuing greener innovations. To test and quantify the theory, we bring together patent data, survey data on environmental values, and competition measures. Using a panel of 8,562 firms from the automobile sector that patented in 42 countries between 1998 and 2012, we indeed find that greater exposure to environmental attitudes has a significant positive effect on the probability for a firm to innovate in the clean direction, and all the more so the higher the degree of product market competition. Results suggest that the combination of historically realistic increases in prosocial attitudes and product market competition can have the same effect on green innovation as major increase in fuel prices.

Suggested Citation

  • Aghion, Philippe & Bénabou, Roland & Martin, Ralf & Roulet, Alexandra, 2020. "Environmental preferences and technological choices: is market competition clean or dirty?," LSE Research Online Documents on Economics 108425, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:108425
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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. Daron Acemoglu & Ufuk Akcigit & Douglas Hanley & William Kerr, 2016. "Transition to Clean Technology," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 52-104.
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    More about this item

    Keywords

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

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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