515 / 2024-04-25 18:20:25

Carbon Transparency and Green Technology Adoption with Mandatory versus Voluntary Disclosure

carbon disclosure, information acquisition, green technology adoption, environmental concerns

 The past decade has seen a prevalence among governments to implement mandatory carbon disclosure regulations to replace voluntary disclosure initiatives. The disclosure mandate aims to improve carbon transparency and stimulate firms' green technology adoption for emission reduction. However, it is not clear whether it is effective, especially when consumers are becoming more environment-concerned about the carbon footprints of products. To enrich the understanding of this issue, we build a game-theoretic model to analyze a firm's decisions on green technology adoption, carbon information acquisition and disclosure when selling to consumers with environmental concerns. We compare mandatory and voluntary disclosure in terms of their environmental implications (the degree of carbon transparency, the adoption of green technologies) and economic implications (firm profit and consumer surplus). Our results underscore several important findings. First, compared with voluntary disclosure, mandatory disclosure impairs carbon transparency, despite that the firm has to disclose any acquired information. Moreover, an increase in the consumes' environment concern widens the gap of such carbon transparency. Second, mandatory disclosure can also be less effective to incentivize the adoption of green technologies because of the firm's inflexibility to suppress unfavorable information. Finally, mandatory disclosure can be beneficial or detrimental to the firm and consumers, depending on the characteristics of the industry (e.g., the cost of emission information acquisition) and the market (e.g., the degree of environmental concerns among consumers). We identify conditions under which mandatory disclosure reaches multi-win and multi-lose outcomes over voluntary disclosure.