Not so fast, dear Prius-driving, Fair-Trade-coffeedrinking, organic-produce-eating, hemp-wearing, solar-energy-using, wind-up-radio-listening SSIR reader! Green products may not save the world after all, shows Matthew J. Kotchen, an assistant professor in the Donald Bren School of Environmental Science & Management at the University of California, Santa Barbara. Indeed, if green products crowd out money that used to go to environmental nonprofits, they may actually make the environment worse, he writes.
Kotchen presents his findings in the August 2006 issue of the Journal of Political Economy. Like many theoretical economists, he bases his findings on mathematical models, rather than on observations of people’s behavior. Starting from the fact that green products usually cost more than conventional products, Kotchen’s model suggests that people who would ordinarily make donations to environmental nonprofits may now redirect that cash to cover green products’ higher prices. If the green products do a worse job of protecting the environment than did the nonprofits, then the environment will ultimately suffer.
“Consumers need to be more interested in what the technology of a green product really is,” says Kotchen. “They should also be cognizant of how their use of that product affects their charitable giving.” Governments too should be more cautious of green products, he says: “There is a big push to having a more decentralized approach to environmental policy. But even if firms innovate on their own, their products could be detrimental to the public good.”
Other social innovations may likewise have a dark side, notes Kotchen. Goods produced by social enterprises, investments in socially responsible companies, and campaigns that donate a percentage of a firm’s profits to a charitable cause, such as the Gap’s Product Red campaign, may similarly compete with nonprofits for donor dollars.
“On balance, I am optimistic that green products will have a positive effect,” says Kotchen. “But we have to be careful.”