Green Markets and Private Provision of Public Goods

This paper develops a general model of private provision of a public good that includes the option to consume an impure public good. The model is used to investigate the positive and normative consequences of "green markets," which are based on technologies with joint production of a private good and an environmental public good. It is shown that under reasonable conditions green markets can have beneficial or detrimental effects on environmental quality and social welfare. The analysis applies equally to nonenvironmental choice settings, with examples ranging from socially responsible investments to commercial activities associated with charitable fund-raising.