Environmental policy with green consumerism

We analyze environmental policy in a model where some consumers (dubbed green) derive warm glow from buying good of higher quality, and green firms differentiate products on their quality to enjoy market power. For any given pollution level, emission taxes turn out be less cost-effective than an standard because taxation always induces wedge between the qualities products. By stark contrast, prefer standards when intensity is not too large. Also, ability exert power makes tax attractive consumers. When level endogenized via majority voting, both neutral vote favor laxer therefore compared case non-differentiated chosen efficient pollution. Green consumerism reduces protection with but taxes.