Working Paper

The Environmental and Macroeconomic Effects of Socially Responsible Investment

Lammertjan Dam, Ben J. Heijdra
CESifo, Munich, 2008

CESifo Working Paper No. 2349

We analyze the effects of socially responsible investment and public abatement on environmental quality and the economy in a continuous-time dynamic growth model featuring optimizing households and firms. Environmental quality is modelled as a renewable resource. Consumers can invest in government bonds or firm equity. Since investors feel partly responsible for environmental pollution when holding firm equity, they require a premium on the return to equity. We show that socially responsible investment behaviour by households partially offsets the positive effects on environmental quality of public abatement policies.

CESifo Category
Public Finance
Keywords: socially responsible investment, economic growth, environmental economics, resource dynamics, stock market
JEL Classification: H230,M140,O160,O410,Q210