PAYING TO BE GOOD - UK ETHICAL INVESTMENTS

Ethical investing raises questions relating both to the possibility of private provision of public goods and to the determination of asset prices in financial markets. In both cases economists have turned to more complex, psychologically based models of behaviour to provide adequate explanations. Such models show that there is unlikely to be a clearly identifiable cost to ethical investment, and suggest the need for closer consideration of the diversity of investors' motives. The discussion is illustrated by reference to the growth and performance of U.K. ethical investments.