On the Emergence of Overcompliance with Endogenous Environmental Standards and Patronising Consumers

We propose a model of environmental overcompliance in a duopoly setting where consumers are environmentally concerned and may patronise the product they buy, firms set their green investment to abate the impact of productivity on pollution and a government sets the environmental standard with the aim to maximise welfare. We show that, with no patronising consumers, overcompliance is unilateral by the firm with higher quality standard under Bertrand behaviour, whereas both firms may overcomply under Cournot competition if the environmental impact of production is sufficiently low. Conversely with patronising consumers, overcompliance is unilateral with low environmental impact of production under price competition, and both firm overcomply under quantity competition.