TECHNOLOGY CHOICE AND ENVIRONMENTAL AWARENESS IN A TRADE AND ENVIRONMENT CONTEXT

Assuming that an environmentally-friendly technology not only reduces pollution emissions but also strengthens the preference of consumers for goods produced with such a technology, we show that a legally stipulated choice of cleaner technologies, requiring resources and hence reducing output, can improve the welfare of the economy even when other economies do not choose such technologies, and that the driving force can be the terms-of-trade effect. Therefore, even a unilateral regulation on the choice of technology would be approved in the economy when the environmental awareness of consumers is sufficiently raised.