Does corporate social responsibility create value? : environmental friendly production in a two-sector OLG-model

In this paper we analyze how the choice between "clean" and "polluting" consumer goods affects environmental quality in an overlapping generations model. Consumers can choose between two, from a consumption perspective identical goods. However, one is produced in an environmentally friendly manner, the other is produced without taking environmental issues into consideration. The production of the former is assumed to be more costly in the sense that "green" firms are less productive and consequently they also charge a higher price for the good in equilibrium. Our model shows that the existence of "green" firms creates value through this allocating mechanism, in which society makes a trade-off between the level of productivity and the level of environmental quality. Although in the long-run the dirty sector does not necessarily vanish, only growth in the clean sector is sustainable