Green Veblen effect: Sustainability in pollution management

Abstract

We know that green products may initially exhibit a Veblen effect–demand increasing with prices–often followed by a decrease in price. The global understanding of these joint phenomena still needs to be improved, impeding appropriate profit-maximizing policies. Our article fills the gap by tying sustainable dynamic policies to pollution management with green consumers. This article develops an optimal control framework for production and pollution abatement, accounting for both the demand-side, with green consumption, and the supply-side, with polluting production. Results investigate the conditions characterizing the initial green Veblen phenomenon and show how to manage a green Veblen product over time. Our results pave the way to more profitable strategies accounting for sustainability.