TY  - UNPD
A1  - Kaufmann, Marc
A1  - Andre, Peter
A1  - Kőszegi, Botond
T1  - Understanding markets with socially responsible consumers
N2  - Many consumers care about climate change and other externalities associated with their purchases. We analyze the behavior and market effects of such “socially responsible consumers” in three parts. First, we develop a flexible theoretical framework to study competitive equilibria with rational consequentialist consumers. In violation of price taking, equilibrium feedback non-trivially dampens a consumer’s mitigation efforts, undermining responsible behavior. This leads to a new type of market failure, where even consumers who fully “internalize the externality” overconsume externality-generating goods. At the same time, socially responsible consumers change the relative effectiveness of taxes, caps, and other policies in lowering the externality. Second, since consumer beliefs about and preferences over dampening play a crucial role in our framework, we investigate them empirically via a tailored survey. Consistent with our model, consumers are predominantly consequentialist, and on average believe in dampening. Inconsistent with our model, however, many consumers fail to anticipate dampening. Third, therefore, we analyze how such “naive” consumers modify our theoretical conclusions. Naive consumers behave more responsibly than rational consumers in a single-good economy, but may behave less responsibly in a multi-good economy with cross-market spillovers. A mix of naive and rational consumers may yield the worst outcomes.
T3  - SAFE working paper - 411 
KW  - socially responsible consumers
KW  - social preferences
KW  - climate change
KW  - externalities
KW  - competitive equilibrium
KW  - regulation
KW  - taxes
KW  - caps
Y1  - 2023
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/71547
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-715471
UR  - https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4671808
N1  - Support by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) through CRC TR 224 (Project A01) is gratefully acknowledged. We also gratefully acknowledge research support from the Leibniz Institute for Financial Research SAFE.
PB  - SAFE
CY  - Frankfurt am Main
ER  -