ESSAYS IN ENVIRONMENTAL REGULATION DESIGN AND PRODUCT DIFFERENTIATION

Kiana Yektansani

Part of this dissertation focuses on environmental issues, and the design and development of environmental policy to fix these issues. The other part analyzes product differentiation for firms using an industrial organization approach. In the first paper (Chapter 1), I examine how future considerations and environmental concerns affect environmental policy design when consumers face a green product and a brown alternative with long-lasting polluting impacts. The results show that a subsidy for the green firm yields a strictly higher social welfare than a context without regulation. Additionally, social welfare improves when the regulator takes consumers’ future considerations into account compared to the case in which future considerations are ignored. In addition, improving perceived environmental quality of the green good can increase social welfare if a high perceived quality is already established, the abatement cost is low, and the environmental damage is high. Finally, I discuss how change in consumers’ patience impacts the optimal level of subsidy and social welfare. In the second chapter (Chapter 2), I study an entrant’s firm’s problem who is introducing a product with two horizontally differentiated attributes into the market; one discrete (taking two values) and one continuous attribute. The results show that the choice of location for attributes depends on the portion of consumers who ideally prefer the incumbent’s location for the discrete attribute. However, the entrant always performs maximum product differentiation in at least one of the attributes. In the third chapter (Chapter 3), I focus on predicting individuals’ environmental beliefs and attitudes and their policy implications. I use the data from the European Social Survey and employ four machine learning techniques to make the predictions. My model can correctly identify more than 70% of the environmentally conscious respondents in different settings. These results help politicians avoid substantial resistance costs that can arise from an environmental policy without broad public support. This information is also helpful for green producers who need to be able to predict consumers’ willingness to pay and environmental preferences to deliver them targeted marketing strategies and product features.

ESSAYS IN ENVIRONMENTAL REGULATION DESIGN AND PRODUCT DIFFERENTIATION

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