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Can Mandatory Certification Promote Greenwashing? A Signaling Approach

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This paper examines how positive or negative perceptions about innovation a§ect Örmsístrategic behavior when certifying their products. In particular, we consider two types of Örm(innovative and non-innovative) which choose between three signals: (1) certiÖed claim, (2)uncertiÖed claim, and (3) no claim. The consumer, either exhibiting positive or negative perceptions, is uninformed about the Örmís type and only observes the firm's claim. We find that a separating equilibrium arises in which information about the innovation is revealed to consumers. We also identify a pooling equilibrium in which both types of Örm choose the same claim, concealing information from consumers. We show that regulation requiring mandatorycertiÖcation can hinder information transmission. Our results also indicate that changes in product perceptions do not necessarily facilitate information transmission

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  • Espinola-Arredondo, Ana & Garrido, Dolores & Munoz, Felix, 2018. "Can Mandatory Certification Promote Greenwashing? A Signaling Approach," Working Papers 2018-5, School of Economic Sciences, Washington State University.
    • Handle: RePEc:ris:wsuwpa:2018_005
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    1. Andrea Podhorsky, 2020. "Environmental certification programs: How does information provision compare with taxation?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1772-1800, December.
    2. Rabah Amir & Joana Resende & Bernard Sinclair‐Desgagné, 2020. "Introduction to the thematic issue on “Regulation in health, environmental and innovation sectors”," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1740-1745, December.
    3. Ralf Buckley, 2023. "Sector-Scale Proliferation of CSR Quality Label Programs via Mimicry: The Rotkäppchen Effect," Sustainability, MDPI, vol. 15(14), pages 1-11, July.
    4. Raphaela Hennigs, 2021. "Conflict prevention by Bayesian persuasion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(4), pages 710-731, August.

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    More about this item

    Keywords

    Signaling game; innovation; certiÖcation; greenwashing;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

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