Impacts of Green Production Decision on Social Welfare

Abstract

As an important approach of achieving sustainable development, green production plays a significant role in improving the ecological environment and total social welfare. In order to clarify the impacts of green production on social welfare favorably, this paper assumes that there are two types of consumers in the market: the green and the brown. Green consumers have green preference, focusing on the environmental and physical attributes of products; while brown consumers only value the physical attributes. We have obtained some intriguing conclusions through the use of the Hotelling model, as follows: (i) The total social welfare will benefit from green production. Meanwhile, we also find that the social welfare is likely to reach the highest value in scenario BG (i.e., both enterprises implement green production) or scenario SG (i.e., only one enterprise implements green production). (ii) Moreover, the total social welfare is always positively related to the degree of consumer green preference and unit of environmental benefit parameters in scenario SG and scenario BG. (iii) Finally, in scenario BG, the proportion of green consumers has a positive effect on the total social welfare, while only when certain conditions are satisfied, the higher proportion of green consumers will benefit the social welfare in scenario SG. Our findings can provide useful managerial insights for policy-makers in the development of green production.