Certification of sustainable forest management: differentiation strategies and asymmetric information

The aim of the paper is to analyse the consequences of Sustainable Forest Management (SFM) on the forest sector and social welfare. In a context where buyers are free to choose an outside option (alternative material), we analyse the optimal management behaviour of foresters. A vertical differentiation set-up a la Mussa-Rosen makes it possible to examine the European forest context: a large number of foresters facing a heterogeneous demand. Management decisions depend on related costs. Whatever management costs, product differentiation always increases the profits of wood suppliers as well as social welfare. However, the impact of SFM on consumer surplus is uncertain: SFM results in more diversification but also entails a smaller quantity of wood marketed at the equilibrium. Associating a fixed certification cost to SFM reduces the number of wood suppliers turning to sustainable management. For a high certification cost, profits made by wood suppliers might turn out to be inferior to those made when only standard wood is marketed.