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slides_week_6 - Topic Six: Can Big Business Green the...

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1 Topic Six: Can “Big Business” Green the Environment?
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2 Capitalist Products and their “Green Lifecycle” • For any good at the store, is it produced in an environmentally friendly way? • When you use it, does it impose large environmental externalities? (i.e air conditioner, SUV) • When you dispose of it at the end of its life- cycle, additional externalities?
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3 Product Labeling • Differentiated Products and capitalism • Consumers want high quality, low price, low externality products • Low externality in terms of environmental impact and perhaps labor standards impacts (i.e not using child labor or sweatshop labor) • Asymmetry of information --- firms advertise and will say they are “green” but either government or a 3 rd party certifier is needed to verify this claim
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4 Toliet Paper versus Organic Lettuce These are two different products where there are green and non-green versions of these products Available information allows for product differentiation the “green product” can be identified In equilibrium will the green product sell for a price premium? Extra marginal cost of supplying a green product? “Warm Glow” from buying green? Private health gains from buying green? – less pesticide in organic produce?
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5 What Do Consumers Know about the products they buy? • Do they care? • Consumer heterogeneity --- some consumers may only consider a product’s quality and price • Other consumers may consider these two factors and the product’s externality impacts • For such green consumers to buy green, they must be able to identify the “Green” products
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6 What do firms know about Consumer Preferences? • Marketing studies
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slides_week_6 - Topic Six: Can Big Business Green the...

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