Why Cleaner Technologies do not Imply Cleaner Economies

Abstract

This paper shows that when a very dirty technology is associated with positive production of a good in an economy then marginal reductions in dirtiness of the technology might lead to an increase in pollution if its consumers are environmentally very aware and a decrease in pollution if consumers are not so. The reason is that environmentally aware consumers perceive a much larger increase in marginal utility from the good after its technology becomes cleaner. An empirical illustration is provided.