Impure public goods and the comparative statics of environmentally friendly consumption

Abstract

This paper develops an impure public good model to analyze the comparative statics of environmentally friendly consumption. “Green” products are treated as impure public goods that arise through joint production of a private characteristic and an environmental public characteristic. The model is distinct from existing impure public good models because of the way it considers the availability of substitutes. Specifically, the model accounts for the way that the jointly produced characteristics of a green product may be available separately as well—through a conventional-good substitute, direct donations to improve environmental quality, or both. The analysis provides a theoretical foundation for understanding how demand for green products and demand for environmental quality depend on market prices, green-production technologies, and ambient environmental quality. The comparative static results generate new insights into the important and sometimes counterintuitive relationship between demand for green products and demand for environmental quality.