Eco‐labelling by a for‐profit certifier: Countervailing power and its consequences

In: The Canadian journal of economics: the journal of the Canadian Economics Association = Revue canadienne d'économique, Band 50, Heft 4, S. 1037-1062

Abstract

AbstractFor‐profit certifier's eco‐labelling is common in industries where firms have some "countervailing power" on sharing gains from labelling. We show that the certification standard for an environmental quality is lowered when firms have strong "power." A certifier with too low bargaining power will prefer to sell to the best offer rather than bargain. This switch in the selling mechanism also thwarts his incentives in setting the standard. This is consequential for evaluating policies. The dimensions and even signs of welfare changes induced by taxes and subsidies depend upon the mechanism used, and ultimately upon firms' countervailing power.