Globalization of markets and consumption home bias: new insights for the environment

We propose a model of international oligopoly with two countries, two vertically-differentiated goods, and heterogeneous consumers in terms of their willingness to pay for quality. Various sources of pollution are taken into account: consumption, production and the transportation of goods between the two countries. Green persuaded consumers display consumption home bias: they derive additional satisfaction when consuming a domestic good because buying locally abates transportation pollution. We investigate whether consumption home bias effectively curbs global emissions. Finally, we uncover the environmental role played by the globalization of markets.