Green Consumers and the Transition to Sustainable Production

Abstract We investigate the interaction between consumers’ environmental concern, environmental corporate social responsibility (ECSR), and environmental regulation during the transition towards sustainable production. We study an economy in which a subpopulation of consumers is sensitive to environmental issues. In this setting, we analyse the steady-state equilibrium in a framework à la Droste (Games Econ Behav 40(2):232–269, 2002), where firms compete in quantities and decide whether or not to engage in ECSR activities, which ultimately reduce the impact of production on the environment. We find that the variation of social welfare with the increase of ECSR firms is U-shaped, driven by the variation in consumer surplus, while environmental damage is minimised when all firms adopt ECSR practices. Therefore, the short-run social incentives to pursue a transition towards sustainable production are scarce. In contrast, there exists a private incentive to internalise emissions and to proliferate ECSR firms, as profits increase with the proportion of ECSR firms.