Optimal Subsidy and Tax Policies for Green Product with Consumer Environmental Awareness

Abstract

This paper investigates the government’s optimal subsidy and tax policies in response to consumer environmental awareness (CEA) and the manufacturers’ product selection (generic, green or both) plus quality and pricing decisions. We derive the equilibria under different policy combinations and derived the analytical and numerical solutions. We find that (1) subsidizing and taxing consumers is more social beneficial when the potential market share of green products is small and environmental technology is high; (2) subsidizing green-product consumers and taxing manufacturers who produce ordinary products can yield higher social welfare; (3) subsidizing and taxing manufacturers may be more social optimal when either CEA or consumer awareness of traditional quality is high.