Technological choice under environmentalists' participation in emissions trading systems

We model competition in an emissions trading system (ETS) as a game between two firms and environmental group. In a previous stage, firms endogenously choose their manufacturing technologies. Our results show that there is a U-shape relationship between how polluting the chosen technology is and the degree of the environmentalists’ impure altruism. Firms choose a more polluting technology in the presence of the environmentalists than in their absence if they are characterised by high enough degrees of impure altruism.