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© National Institute of Economic and Social Research 2019

How Do We Achieve a Sustainable Economy?
 Research Project

Green Product Differentiation and Innovation in the Transition to a Clean Economy

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Principal Investigator: Marion Dumas

Dr. Marion Dumas is an Assistant Professorial Research Fellow at the Grantham Research Institute. Her research focuses on barriers to radical green innovation that arise because of the strategic interactions and interdependencies between firms in industrial networks. One goal is to identify institutions that can facilitate faster and more radical technological change and thereby complement price incentives. In the next few years, Marion intends to contribute both theoretically and empirically to our understanding of green growth, in particular how the imperative of green growth interacts with the current trend towards increasing automation, which is reshaping labour markets and macroeconomic constraints.

Marion is a political economist, also trained as an environmental scientist, broadly interested in how to reform both economic and political policies and institutions to contend with planetary boundaries.

She holds a B.Sc in Earth and Atmospheric Sciences from MIT, a M.Sc in Environmental Sciences from the ETH Zurich, and a PhD in Sustainable Development from Columbia University (during which she trained as an economist and political scientist). Before coming to LSE, Marion was an Omidyar postdoctoral fellow at the Santa Fe Institute.

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Project Summary

Firms innovate to put on the market green products in order to differentiate themselves from their competitors and charge consumers a higher price for a more valued product. Thus typically, green products start off as higher-quality goods targeted to higher-income consumers. How do green products become mainstream? In xx, Schumpeter wrote “The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort... The capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.” What he says is that, thanks to innovation, higher quality goods become cheaper and become available to the mass market. Can we count on this spontaneous mainstreaming for green goods, or are there processes that can cause them to fail to reach mass markets and thereby fail to contribute to sustainable growth?

 

 

This spontaneous process occurs if there is a positive feedback between firms’ willingness to invest to improve these goods and make them cheaper, and firms’ willingness and ability to conquer growing segments of the consumer market. If this feedback doesn’t occur, the goods will remain niche, unless policy-makers intervene in the process by introducing product standards, procurement policies or subsidies.

 

In this short project, I will collect data on the mainstreaming process of green goods (e.g. price change, market penetration, number of competing firms) to document variation in this process across countries and goods. This will help me develop a theoretical framework of the co-evolution of innovation and demand, and develop hypotheses that should be tested in future work.

 

Two preliminary insights guide my investigation. First, there is both theoretical and empirical work in macroeconomics that shows that inequality can shape product innovation. Inequality can cause innovation to be targeted more at some income categories than others. It may even discourage innovation if consumer markets become too segmented. Second, green goods cover products as diverse as green cleaning products, organic food, electric cars and stoves etc… Some are durable, some are non-durable, some are conspicuous, some are inconspicuous, some represent major capital outlays, others not. The dynamics of innovation are likely to vary across these types of goods. I will attempt to theorize about the key properties of green goods that affect the way in which they become mainstream. This will be useful to policy-makers as they need a “map” of how the dynamics of green product innovation may differ across categories of goods in order to anticipate and interpret trends in green innovation.

 

From a policy viewpoint, this project can also help us understand when and why we need policies that stimulate innovation (e.g. research subsidies), versus policies that stimulate demand (procurement), versus policies that forcefully accelerate mainstreaming of green goods (introduction of standards). This project uses concepts and theories from environmental economics, industrial organization and macroeconomics, as well as evolutionary economics. Rather than starting with a formal model based in a single disciplinary tradition, it aims to first document the phenomenon empirically in order to then build a parsimonious theoretical framework.

Results

Results will be published here when available.