Morality, Social Identity and Environmentally Conscious Economic Behaviour: Advancing our Understanding of Green Consumption and Investment

The neoclassical framework of independent, self-interested, utility-maximising agents often fails to adequately explain environmentally sustainable behaviours. This thesis explores how integrating key aspects of human nature — such as morality and social identity — into economic models can better capture the drivers of sustainable decision-making. In the first two papers, I develop theoretical models to examine the influence of Kantian morality on consumer and investor behaviour. The first paper investigates consumer behaviour within an optimal taxation framework. It demonstrates that in a homogeneous society of perfectly moral agents, environmental externalities are fully internalised, eliminating the need for corrective taxation. However, heterogeneity in preferences and income can reduce the degree of internalisation, necessitating government intervention. The second paper analyses investor behaviour using a two-period asset pricing model. It shows that in an economy composed entirely of Kantian investors, the price premium on polluting assets equals to social cost of their externalities. When a proportion of investors deviate from Kantian principles to optimise in a self-interested manner, moral investors partially compensate for excessive investment in polluting assets but fail to achieve a Pareto optimal outcome. The final paper presents an empirical study of household preferences for renewable heating systems, exploring the role of latent environmental attitudes, energy attitudes, and social identity in shaping willingness to pay for heating system attributes. The estimation results reveal that pro-environmental attitudes, energy-saving attitudes, and coal mining identity significantly influence how households prioritise the different social benefits arising from the heating systems. Whilst predicted effects of latent variables on sensitivity to attributes are of the expected sign, the effects on willingness to pay are limited due to cost sensitivity. Investment cost emerges as a critical factor in the attitude-behaviour gap.