Green consumption: The role of confidence and pessimism

Abstract

This paper proposes a green consumption model under non-probabilized uncertainty surrounding the environmental benefits of green goods. We study the theoretical implications of the introduction of non-probabilized uncertainty (ambiguity) and attitudes towards uncertainty: confidence (belief about the veracity of the available information) and pessimism (consumer’s probability estimation of the realization of the worst possible outcome when consuming green goods). We analyze their respective impact on green consumption and consider individuals with heterogeneous beliefs. Pessimism has a negative impact on green demand; meanwhile, an increase in confidence does not always imply an increase in green demand, it depends on the level of pessimism. We determine the impact of uncertainty and beliefs on the equilibrium and the socially optimal level of private voluntary provision. We find that under uncertainty, the individual level of green consumption at the Nash equilibrium may be greater than the individual level at the social optimum.