On the Effect of Social Norms to Reduce Pollution

Abstract

We analyse how market competition in a vertically di¤erentiated polluting industry is a¤ected by product variants that comply at di¤erent levels with "green" social norms. A green consumption behaviour is considered as a byword of good citizenship. Consumer preferences depend on a combination of hedonic quality and compliance with the norms. Assuming that the high hedonic quality variant complies less with the norms than the low hedonic quality one, we characterize the di¤erent equilibrium con…gurations, depending on the perceived intensity of such norms. Then, we focus on the role that institutions may have in using these norms to reduce pollution emissions.