Shortsighted Behavior and Efficiency Paradox: Perceived Uncertainty of Economic Policies, Carbon Emissions, and Green Awareness of Decision-Makers

What the paper says

This paper examines the impact of firms’ perceptions of economic policy uncertainty on carbon emissions using data from 1553 listed companies over the period 2013–2022, analyzed through the lens of political economy theory. The study reveals an inverted “U-shaped” relationship between firms’ perceptions of economic policy uncertainty and carbon emissions, suggesting that such perceptions lead to an increase in carbon emissions. This finding is consistent with the political economy theories of “shortsighted behavior” and the “efficiency paradox”. According to the “shortsighted behavior” theory, firms facing economic policy uncertainty tend to adopt strategies that maximize short-term gains, which, in turn, results in higher carbon emissions. The “efficiency paradox” theory explains that, while firms may improve production efficiency by increasing total factor productivity or leveraging artificial intelligence in the face of uncertainty, these improvements can paradoxically lead to an increase in carbon emissions. Regression analysis with moderation further reveals that the green awareness of decision-makers, particularly Chief Executive Officers (CEOs), can moderate this relationship, alleviating the negative impact of firms’ perceptions of economic policy uncertainty on carbon emissions. Through the framework of political economy theory, this study offers deeper insights into the complex relationship between firms’ perceptions of economic uncertainty and carbon emissions, highlighting the essential role of decision-makers’ green awareness in advancing sustainable development. It also provides a foundation for balancing economic growth with environmental protection in corporate strategies.