Advertising, Reputation, and Environmental Stewardship: Evidence from the BP Oil Spill
This paper explores whether and how private markets can provide environmental stewardship through green advertising. We examine the period surrounding the 2010 BP oil spill and estimate how pre-spill investment in “green advertising” affected the spill’s impact on BP retail gasoline prices and demand. We use station-level prices and sales from a large sample of U.S. retail gasoline stations and market-level advertising expenditures during BP’s 2000-2008 “Beyond Petroleum” campaign. We find evidence consistent with consumer punishment of BP in the months following the spill; during the spill BP margins declined significantly by 4.2 cents per gallon, and volumes declined by 3.6 percent. Losses were larger in areas where consumers express strong green preferences in their purchase of other products, and lower in areas with higher income. In areas where pre-spill exposure to BP advertising was higher, losses were significantly smaller. Advertising appears to soften the impact of the spill on retail margins in the short run, and lessen long-run losses measured as the fraction of BP gas stations switching brand affiliation post-spill. We conclude that green advertising acts as insurance against environmental damage rather than as a commitment to green production.
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This paper was revised on September 30, 2015
Document Object Identifier (DOI): 10.3386/w19838
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