Induced vs. Voluntary Green Production: Which Is Better for Society?

This article studies the environmental and societal impacts of a polluting monopoly when society strives for clean environment. Two scenarios are considered: (1) government levies an tax to induce investment in emission-reducing technology, (2) monopolist engages corporate social responsibility (CSR). It is shown that taxation has lower impact, but undertakes CSR activities only if abatement technology efficient. Social welfare always higher under CSR; therefore, not adequately efficient, should implement second-best policy avoid worst outcome.