Public Goods Provision in the Presence of Heterogeneous Green Preferences

This paper develops a model that incorporates heterogeneity across preference structures where some agents exhibit pro-social behavior – “green” preferences in our examples – and some do not. We compare the relative performance of various policies to increase public goods provision in the presence of this heterogeneity. We find that technology standards are almost always preferable to price instruments, working counter to the usual efficiency advantage of price-based policy. We then extend the model to allow heterogeneity in both green preferences and costs of provision: we show how the two effects compete to determine optimal policy. In the context of energy conservation policy we argue that heterogeneity in green preferences may importantly reduce the efficiency costs of existing consumer-facing technology mandates. ∗University of California at San Diego, Department of Economics, 9500 Gilman Drive, La Jolla, CA 92093. Email: [email protected]. †University of Tennessee, Department of Economics & Baker Center for Public Policy. ‡Georgia State University, Department of Economics.