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Working Paper

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This paper compares the effects of technology innovation and pricing policy in green markets on the provision of the public good. We extend the standard model of impure public goods to draw a distinction between green goods and green services, which are both subsets of impure goods. The motivating example of a green good with a price policy is a consumer installing a subsidized solar panel on her roof, while that of a green service is a consumer paying a surcharge for green electricity generated by her utility company. Experimentally, subjects face several sequential allocation decisions designed to mirror the underlying impure goods model. We find that increases in the technology of the impure good increase the public characteristic, as do increases in its subsidy and decreases in its surcharge. Equivalent technology and subsidy increases have identical effects, as do equivalent green good and green service markets (when the underlying technology is the same). In line with the previous literature, theoretically irrelevant impure goods actually decrease overall public provision. The added opacity of green markets also leads to greater efficiency loss in public provision than in private consumption. Market efficiency decreases as technology improves or as equivalent policy changes are made. Efficiency is significantly higher for individuals who indicate higher cognitive effort. These results taken together suggest a large toolbox is available to policymakers and that these tools can be complementary.

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We would like to thank the Salisbury University Faculty Mini-Grant for providing funding for this study. We would also like to thank participants at the 2016 North-American Economic Science Association Conference and the 2017 Midwest Economics Association Annual Meeting for their useful questions, comments, and feedback. Last, we would like to extend a very special thank you to Shannon Maio for her assistance in the lab.