Abstract: Investing in green firms is widespread and viewed as a market-based approach to curbing CO2 emissions. However, several studies cast doubt on the effectiveness of such strategies, advocating investments in brown firms to support their environmental transition. The problem with this alternative is that reallocating capital to brown firms may be prevented by investors’ aversion to brown firms. Are investors willing to invest in brown firms if doing so has a positive impact? In this paper, I conduct a theory-guided experiment that disentangles investors’ motives and examine their willingness to invest in brown firms if such investments have a positive effect. Contrary to previous findings, I document that investors are primarily driven by the impact of their decisions rather than by the utility derived from investing in green firms. Moreover, when fixing investors' impact, the greener the firm is initially, the lower investors' willingness to pay to invest in it. Structural estimation results suggest that this negative relationship is driven by loss aversion in the environmental domain and diminishing returns to impact. 

Abstract: We analyze the equilibrium of a bilateral bargaining game (Nash, 1953), where at least one of the individuals has a preference for morality (homo moralis). We show that the equilibrium set crucially depends on these moral preferences. Furthermore, our comparative static analyses provide insights into the distributional implications of individuals’ moral concerns and the composition of society. A comparison of the set of equilibria in our model with those under selfish preferences, Kantian equilibrium, fairness preferences, altruistic preferences, and inequality averse preferences reveals important differences.

Abstract: Recent studies show that individuals’ decisions are shaped by their perceptions of socially appropriate behavior. However, these studies elicit such perceptions without developing a theory of how individuals determine social appropriateness. This paper proposes a framework in which social appropriateness judgments emerge endogenously from a utility function that combines payoff maximization with universalization reasoning. The framework allows one to compute the social appropriateness of any action without relying on beliefs, preferences, or choices. I test the theory’s predictions using evidence from past studies and new data from a laboratory experiment.

Abstract: The sustainability of cooperation is crucial for understanding the progress of societies. We study a repeated game in which individuals decide what share of their income to transfer to other group members. A central feature of our model is that individuals may, with some probability, switch incomes across periods—our measure of income mobility—while the overall income distribution remains constant. We analyze how income mobility and income inequality affect the sustainability of contribution norms—informal agreements about how much each member should transfer to the group. We find that greater income mobility facilitates cooperation. In contrast, the effect of inequality is ambiguous and depends on the progressivity of the contribution norm and the degree of mobility. We apply our framework to an optimal taxation problem to examine the interaction between public and private redistribution. 

Abstract: Rejections of positive offers in the Ultimatum Game have been attributed to a diverse set of motives. We show that a model combining social preferences and moral concerns provides a unifying framework that explains these rejections, while accounting for additional empirical regularities. We present three main theoretical results. First, under the preferences considered, a positive degree of spite is a necessary and sufficient condition for rejecting positive offers, implying that social preferences drive rejections in the Ultimatum Game. Second, offers and rejection thresholds increase with individuals’ moral concerns, suggesting that morality amplifies social preferences. Third, there is a positive correlation between individuals’ own offers and their rejection thresholds. Using data from van Leeuwen and Alger (2024), we estimate individuals’ social preferences and moral concerns with a finite mixture approach. We identify two types of individuals who reject positive offers in the Ultimatum Game and who differ substantially in their Dictator Game behavior, consistent with previous evidence.