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

There is mounting evidence that consumers’ desire to reduce their environmental impact can stimulate green innovation. Unfortunately, we know little quantitatively about this process and how to leverage it for the transition to a clean economy.

To make progress, the project focused on the adoption and diffusion phases of innovation, and asked what are the conditions that allow a “green consumer product cycle”, i.e. the process by which a green product goes from being expensive and niche to mainstream and affordable. Weaving together research from macroeconomics, innovation studies, marketing and sociology, I propose a framework to study this process. The framework enables me to outline a research program on green consumer product innovation and its contribution to a clean economy transition.

The framework particularly highlights that the heterogeneity of consumers, in terms of taste and ability to pay for environmental quality, will shape the dynamics of innovation. Thus, to understand green consumer product cycles, we must monitor the penetration of products across different income groups. I do this using the Nielsen Homescan dataset for the case of organic products in the US. I find no downward movement in the premium for organic (one of the key elements of a product cycle). Nonetheless, I find steady penetration of organic products across all income groups. This suggests that demand is strengthening. Firms respond by expanding the diversity of products and outlets which offer them. However, they mostly target highly differentiated product categories, consistent with the idea that quality differentiation drives green innovation and maintains high prices. I also find large variation across markets. A low-income household in a rich and large market has more access and buys more organic food than the same household in a poorer or smaller market. However, greater income inequality in a market stimulates the product cycle for the top quintiles and dampens it for the bottom quintiles. Thus, demand for green is increasing, which stimulates green innovation; but heterogeneity between consumers creates incentives for firms to segment the market, which limits the spontaneous mainstreaming of green products in the absence of regulation.

Results

Blogs

Green Product Cycles

Marion Dumas | April 9, 2021