Sustainability agreements and first mover advantages

This paper presents a model where the managers of two firms decide about adopting a sustainable production technology (or product). It demonstrates under what conditions a firm experiences a first-mover disadvantage from going green, which may potentially be overcome by a sustainability agreement serving as a device for equilibrium selection in a coordination game with multiple equilibria. If the technology adoption game is, however, a prisoner’s dilemma, the sustainability agreement must be structured like a hardcore cartel.