Environmental Quality: Impact of Economic Growth
نویسنده
چکیده
Using a vertically di↵erentiated product model, the paper aims to investigate the e↵ects of economic growth on market provision of product quality. The quality attribute considered is environmental-friendliness of products. Economic growth is modeled as a shift in income distribution. It shows that the e↵ect of economic growth depends on the form it takes. A growth in income that is uniform across all consumers improves the cleanup levels adopted by both firms. However, a heterogeneous growth in income may result in lowering of one of the two qualities. More specifically, if the growth in income is accompanied by increased disparities in income distribution, the quality of the (environmentally) inferior variant is reduced. This has serious implications for the poor consumers if the product has safety or health hazards. The paper suggests a regulatory measure to prevent such deterioration in the quality of the inferior variant. JEL Classification: O1, O44, L11, L 13, L15.
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