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Informational Benefits of International Environmental Agreements

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Author Info

  • Amihai Glazer

    ()
    (Department of Economics, University of California-Irvine)

  • Vesa Kanniainen

    ()
    (Department of Economics, University of Helsinki)

  • Panu Poutvaara

    ()
    (Department of Economics, University of Helsinki)

Abstract

This paper develops a theory of consumer boycotts. Some consumers care not only about the products they buy but also about whether the firm behaves ethically. Other consumers do not care about the behavior of the firm but yet may like to give the impression of being ethical consumers. Consequently, to affect a firm's ethical behavior, moral consumers refuse to buy from an unethical firm. Consumers who do not care about ethical behavior may join the boycott to (falsely) signal that they do care. In the firm's choice between ethical and unethical behavior, the optimality of mixed and pure strategies depends on the cost of behaving ethically. In particular, when the cost is (relatively) low, ethical behavior arises from a prisoners' dilemma as the firm's optimal strategy.

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Bibliographic Info

Paper provided by University of California-Irvine, Department of Economics in its series Working Papers with number 070818.

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Length: 16 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:irv:wpaper:070818

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Keywords: Firm's ethical code; Consumer morality; Boycotts;

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References

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  1. Guth, W., 1993. "A Simple Justification of Quantity Competition and the Cournot-Oligopoly Solution," Discussion Paper 1993-5, Tilburg University, Center for Economic Research.
  2. Parkash Chander & Henry Tulkens, 1995. "A core-theoretic solution for the design of cooperative agreements on transfrontier pollution," International Tax and Public Finance, Springer, vol. 2(2), pages 279-293, August.
  3. Wolfgang Buchholz & Alexander Haupt & Wolfgang Peters, 2005. "International Environmental Agreements and Strategic Voting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(1), pages 175-195, 03.
  4. Murdoch, James C. & Sandler, Todd & Vijverberg, Wim P. M., 2003. "The participation decision versus the level of participation in an environmental treaty: a spatial probit analysis," Journal of Public Economics, Elsevier, vol. 87(2), pages 337-362, February.
  5. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," NBER Working Papers 10269, National Bureau of Economic Research, Inc.
  6. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  7. Baron, David P., 2002. "Private Politics and Private Policy: A Theory of Boycotts," Research Papers 1766, Stanford University, Graduate School of Business.
  8. Robert Innes, 2006. "A Theory of Consumer Boycotts under Symmetric Information and Imperfect Competition," Economic Journal, Royal Economic Society, vol. 116(511), pages 355-381, 04.
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Citations

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Cited by:
  1. Kimiko Terai, 2012. "Financial Mechanism and Enforceability of International Environmental Agreements," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 53(2), pages 297-308, October.

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