Corporate Environmentalism in Dynamic Oligopoly

Abstract

This study investigates how an increase in the firms' environmental consciousness affects the environment and economic welfare in the presence of dynamic oligopolistic competition where firms' objective may include the society's damage from stock pollution as well as their profits. If all firms are symmetric, an increase in the environmental consciousness reduces consumer surplus and social welfare in the short-run. However, profits may increase if the firms are initially less environmentally conscious. The long-run effects are similar to the short-run ones except for the effect on social welfare because pollution stock is reduced in the steady state. In the case of asymmetric firms, an increase in the polluting firms' environmental consciousness reduces their output whereas it increases the clean firms' output. The clean firms become better off, but depending on the relative number of polluting firms versus clean firms, the polluting firms' profits may increase or decrease.