Incentives, Green Preferences, and Private Provision of Impure Public Goods

Abstract

Pro-environmental preferences are being used increasingly as environmental policy tools. In this paper, I consider the role of heterogeneous green preferences for private provision of environmental goods that have both private and public characteristics. Under different assumptions of information available to a regulator, I characterize equilibrium properties of several mechanisms. I find incentive-compatible Nash equilibria that provide socially optimal public goods provision when the regulator can enforce individual consumption contracts, as well as when reported consumption contracts are supplemented with group penalties. The role of budget balancing is recast as a policy intervention for correcting environmental market failures. Throughout the paper, I ground the exposition with examples of consumer behavior in the context of green electricity programs and goal setting for energy conservation.