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CEP discussion paper
Environmental preferences and technological choices: is market competition clean or dirty?
Philippe Aghion, Roland Bénabou, Ralf Martin and Alexandra Roulet March 2020
Paper No' CEPDP1684:
Full Paper (pdf)

Tags: environment; product market competition; innovation

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.