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Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?

Author

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

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-by-step 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

  • Philippe Aghion & Roland Bénabou & Ralf Martin & Alexandra Roulet, 2020. "Environmental Preferences and Technological Choices: Is Market Competition Clean or Dirty?," NBER Working Papers 26921, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26921
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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.
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    More about this item

    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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