Can green consumerism replace environmental regulation?—a differentiated-products example

This paper assumes that consumers are willing to pay an extra premium for a good if it has a low impact on the environment. We examine if a little dose of such idealistic behavior has a large impact on the market equilibrium, and to what extent it can replace the environmental regulation. The analysis is carried out in a model with product differentiation, where consumers differ in their preferences for product quality. Consumers’ willingness to pay the environmental premium may be uniformly or non-uniformly distributed. Green consumerism will only be modestly influential in both cases, despite the fact that product differentiation leads to relaxed competition and increased profits, and thereby creates leverage.