TY - JOUR

T1 - Worse is worse and better doesn't matter?

T2 - The effects of favorable and unfavorable environmental information on consumers’ willingness to pay

AU - Petersen, Lars

AU - Hörisch, Jacob

AU - Jacobs, Kathleen

PY - 2021/10

Y1 - 2021/10

N2 - Increasing consumers’ willingness to pay (WTP) for environmentally friendly products is a key challenge for sustainable development in market economies. Still, how consumers react to favorable and unfavorable environmental information of different quantitative extents is largely unknown. This research therefore uses prospect theory and competing theoretical foundations to derive pertinent hypotheses and test them by using a multi-level structural equation model. The analysis draws on a survey-based experiment conducted among a representative sample of the German population. Results confirm key assertions of prospect theory. The negative effect caused by unfavorable product carbon footprint information on WTP is stronger than the positive effect caused by respective favorable information. Besides this negativity bias, consumers tend to generally reward or punish deviations of a product's environmental performance from industry average instead of consistently accounting for the size of these deviations. From a sustainable development perspective, the observed patterns highlight a problematic contrast between the need for substantial environmental improvements and limited market incentives for companies. Consequently, political intervention is needed to introduce negative labeling, raise consumers’ reference points, set minimum industry standards, and subsidize companies for radical improvements.

AB - Increasing consumers’ willingness to pay (WTP) for environmentally friendly products is a key challenge for sustainable development in market economies. Still, how consumers react to favorable and unfavorable environmental information of different quantitative extents is largely unknown. This research therefore uses prospect theory and competing theoretical foundations to derive pertinent hypotheses and test them by using a multi-level structural equation model. The analysis draws on a survey-based experiment conducted among a representative sample of the German population. Results confirm key assertions of prospect theory. The negative effect caused by unfavorable product carbon footprint information on WTP is stronger than the positive effect caused by respective favorable information. Besides this negativity bias, consumers tend to generally reward or punish deviations of a product's environmental performance from industry average instead of consistently accounting for the size of these deviations. From a sustainable development perspective, the observed patterns highlight a problematic contrast between the need for substantial environmental improvements and limited market incentives for companies. Consequently, political intervention is needed to introduce negative labeling, raise consumers’ reference points, set minimum industry standards, and subsidize companies for radical improvements.

KW - consumer behavior

KW - industrial ecology

KW - negativity bias

KW - product carbon footprint information

KW - prospect theory

KW - willingness to pay (WTP)

KW - Management studies

UR - http://www.scopus.com/inward/record.url?scp=85106991297&partnerID=8YFLogxK

U2 - 10.1111/jiec.13141

DO - 10.1111/jiec.13141

M3 - Journal articles

AN - SCOPUS:85106991297

VL - 25

SP - 1338

EP - 1356

JO - Journal of Industrial Ecology

JF - Journal of Industrial Ecology

SN - 1088-1980

IS - 5

ER -