Does a market with green goods voluntarily internalize externalities? Evidence from a lab experiment

Fernandes, Maria Eduarda; Valente, Marieta

http://hdl.handle.net/10400.8/3322

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Authors

Fernandes, Maria Eduarda

Valente, Marieta

Abstract(s)

In a green goods market a combination of individual and corporate social responsibility may lead to the internalization of externalities. This economics experiment implements a market for green credence goods in the presence of externalities on other buyers and explores whether a combination of individual and corporate social responsibility may lead to the internalization of externalities. Under information asymmetry, we observe widespread false claims and an apparently pro-environmental market, when in reality green goods are sparingly sold. When a credible label is possible or when the information asymmetry is removed, the provision of actual green goods increases, but is roughly 20% to 25% of the market share. While this share is non-negligible, the niche market that ensues does not ensure that less environmentally damaging consumption options will be widespread, nor that social welfare will be maximized once the information asymmetry is removed.