Is implicit cooperation reasonable for the economy? Corporate environmentalism under Kantian behavior

Abstract

We investigate the effects on the market when firms adopt Kantian behavior, inherently fostering implicit cooperation in the context of corporate environmentalism. We focus on oligopolistic firms’ environmental technology investments and compare investment levels under the Kantian equilibrium with those under the Nash equilibrium and socially optimal levels. When firms are concerned about the environmental impact of others, their environmental investment under the Kantian equilibrium exceeds that under the Nash equilibrium. Furthermore, Nash equilibrium investment is consistently below the social optimum, while Kantian equilibrium investment can either match or approach the socially optimal level. The Kantian equilibrium investment may exceed the socially optimal level if a firm have substantial environmental concerns.