Climate Change, Policy and Habit Formation

Кристина Мозговая (CERGE-EI, Prague) представит доклад "Climate Change, Policy and Habit Formation".

Evidence indicates that climate change due to polluting production affects the environment, human health, and well-being via many incidents including drought, climatic catastrophes, and sea-level rise. While phasing out dirty production allows producers to prevent the negative consequences of climate change, I suggest that financial constraints and habitual consumer behavior inhibit the motivation of producers to transition to clean production. Habit in consumer preferences results in low demand for new clean products and low profitability of a new variety of goods produced. I construct a simple model with a representative producer who produces dirty and clean goods and a representative consumer with habit formation. From the theory perspective, I expect to show that the presence of negative production externality and habit formation slows the transition to clean production more than in models without habit formation. However, I suppose that pollution externality may affect a transition to clean production through habit transformation. To better represent theoretical findings, this model can be potentially calibrated on the European wine market.