When is Environmentalism Good for the Environment?

We study how the supply of environmentalism, which is defned by psychic benefts (costs) associated with the purchase of high-environmental (low-environmental) qualities, afects the way frms choose their prices and products and the ensuing consequences for the global level of pollution. Contrary to general belief, a high supply of environmentalism does not necessarily give rise to a better environmental outcome because it endows the green frms with more market power which they use to charge higher prices. Nonetheless, environmentalism can be used to efectively complement more traditional policy instruments such as a minimum environmental standard.