Environmental policies and eco-innovations by service firms: An agent-based model

Contrary to a widely held prejudice, service activities are polluting because they make use of physical tools and require travel, both of which give rise to externalities. In order to deal with these externalities, service firms can implement eco-innovations. The aim of this article is to evaluate the sensitivity of this eco-innovation to environmental policies by comparing the effectiveness of two such policies: the environmental tax and consumer information. To this end, we construct an agent-based model of innovation that draws on evolutionary biology and theories of innovation in services (Gallouj and Weinstein, 1997 [26]). A test of 123 different scenarios confirms that service firms are sensitive to environmental policies. The results suggest that the eco-tax is more effective, since it produces a lower and more stable level of pollution than a consumer information policy. The information policy appears to give rise to a perverse effect that causes market niches for the most environmentally friendly services to disappear. (C) 2012 Elsevier Inc. All rights reserved.