The prestige of buying green: The Prius case

The prestige of buying green: The Prius case

Consumers are increasingly willing to pay for pricier hybrid cars, expecting social recognition and prestige in exchange for their environmentally friendly consumption habits, a study finds. Society and the environment stand to benefit.

Original Paper:
Sexton, Steven E. and Alison L. Sexton. 2014. Conspicuous conservation: The Prius halo and willingness to pay for environmental bona fides. Journal of Environmental Economics and Management. 67: 303-317. DOI: http://dx.doi.org/10.1016/j.jeem.2013.11.004

Traditionally, sumptuous consumption patterns are regarded as means to exhibit material affluence. Status-seeking individuals display conspicuous consumption of extravagant goods in order to gain social status. But as concerns over environmental degradation rise, evidence points to a shift towards frugality. Increasingly consumers who pay higher prices for environmentally friendly goods — a behavior called "conspicuous conservation — benefit from social recognition and prestige, a recent study found. The private provision of public environmental benefits, which may be reinforced or discouraged by governmental policies seeking to promote this type of behavior, may contribute to achieving better environmental conditions.
 
In the study, published in the Journal of Environmental Economics and Management, researchers authors develop a theory of conspicuous conservation to explain why consumers are willing to pay a premium for environmentally beneficial, conspicuously enough goods in exchange for a bump in social status. In analysis of hybrid and electric-powered vehicles purchased in Colorado and Washington, the researchers show that the preponderance of Toyota Priuses in the green market, compared with other hybrid automobiles, is due to its distinctive design, which allows its owners to effectively convey their commitment to environmental improvement.
 
The authors use the percentage of Democratic voters to gauge how environmentally concerned a community is, and control for factors like income, education, and population density that may be correlated with voting patterns. As for the share of automobiles in both states, they obtained data on registered vehicles from respective licensing departments. Using state zip codes, they examined 3.9 and 4.2 million vehicles for Colorado and Washington respectively. Additionally, they estimate how much the demand for the Prius changed in response to price variations and the extent of the impact that the status effect generates on its demand.
 
The results show a statistically and economically significant effect on purchases of the Prius in "greener" communities. This means that the more environmentally-concerned the community, the higher the status gains from exhibiting green consumption habits. In the authors' opinion, this may explain the larger market share of the Prius relative to other hybrid models. Further, they find that the amount that consumers are willing to pay to demonstrate their commitment to the environment is substantial, ranging from $1,402.84 to $4,208.53 and $430.45 to $1,291.34 in Colorado and Washington communities, respectively, that vote predominantly Democrat.
 
The authors show that consumers seeking status through highly visible green consumption may contribute to environmental enhancement and social welfare. Given that visibility is a key driver of green consumption, this study presents evidence to call for an evaluation of current public policies that aim at encouraging more sustainable consumption patterns by focusing on incentives to promote green goods, like subsidies or tax breaks. If these environmentally friendly goods are visible enough, it may be the case that the taxpayers' money would be better invested in less evident goods that also enhance environmental quality.

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