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

Abstract

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.