Modeling the impact of environmental consciousness on the supply-demand relationship between firms and customers

Abstract

An increasing environmental consciousness of customers can become a strong incentive for firms to supply environmental-friendly products. If these products are not available, supply-demand deficits emerge. We use an agent-based model with an underlying network topology to study different scenarios for mitigating these deficits. Both customers and firms can adjust their tolerance level for environmental pollution, but customers can also establish new relations with other suppliers, following different rules. We show that the optimal mitigation of deficits results if customers form unconditional supply links that may become effective in the future, while firms steadily improve their environmental-friendly production. Our findings can inform policies to reduce both supply-demand deficits and environmental pollution by increasing environmental consciousness.