Abstract. We identify a novel behavioral driver of environmental performance. An increase in country-level consumer sentiment leads to sustained reduction in emission intensity over a multiyear horizon. Since consumer sentiment increases investment, productivity, energy efficiency, and stock market returns, a plausible explanation is that firms can afford to engage in costly reduction of emissions in a buoyant market. The effect tapers off over time and is stronger in countries where sentiment is a more reliable signal for the state of the economy. Our results suggest that policies boosting economic expectations yield substantial environmental benefits.
Coauthor. George Constantinides (University of Chicago, NBER).
Manuscript. You can find the latest draft here.