I am very happy that my paper Green Investors and the Return on Capital in General Equilibrium has now been accepted for publication in Economics Letters. Many thanks to my co-authors Sijmen Duineveld and Kai Lessmann from the Potsdam Institute of Climate Impact Research for the great cooperation in this project. I am very much look forward to the successor project!
In this note, we study how green preferences affect the return on capital in a general equilibrium model with overlapping generations with brown investors and green investors where each generation lives only two periods. The latter type of investors also cares about damages from carbon emissions. The novelty is that firms conduct abatement activities depending on whether their owners are brown or green. The key result of this paper is that return on capital of green firms and the relative green return increase in the share of green investors. Furthermore, a carbon tax leads to convergence of brown and green investors, and thus reduces the relative green return. Although these two results are not that surprising, they are novel and potentially helpful in understanding the plethora of empirical results on brown and green returns.
