Prosocial Preference, Social Image Motivation, and Green Asset Bubble

We study how investors’ prosocial preferences and image considerations affect the stock market via an experimental asset market. We develop a two-stock laboratory asset market where one of the stocks imposes either a positive environmental externality, a positive environmental externality together with image considerations, or neither. When the market only allows a prosocial preference for positive externality, the results support our hypothesis that the market erodes social responsibility. Specifically, the stocks with positive externality do not enjoy a price premium, and individuals with strong prosocial preferences do not push their portfolios toward green purchases. However, when image considerations accompany prosocial preference, their effect on aggregate price dynamics and individual portfolio choices is persistent in the asset market. Moreover, these non-pecuniary considerations also generate a spillover effect for stocks without positive externality since they also experience a higher price