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Certification of Socially Responsible Behavior: Eco-Labels and Fair-Trade Coffee


  • Mason Charles F

    (University of Wyoming)


An intriguing alternative to traditional methods for regulating externalities is the provision of information about firms' environmental attributes. An increasingly important example of this approach is "eco-labeling," where a third party certifies firms' products. This sort of approach can also be used in similar circumstances, for example providing consumers with information on the techniques used to produce the good in question (e.g., shade-grown coffee) or the nature of rent-sharing arrangements that govern the transaction (e.g., fair trade coffee). I present a model of this phenomenon. An important aspect of this scheme is that the product in question is typically a credence good (buyers cannot infer product quality from search or consumption), and hence must rely on a third-party for information about the product. But the very fact that consumers cannot infer quality from consumption implies they cannot infer accuracy about the signal; indeed, the certifying agency may not be able to perfectly determine quality at a reasonable cost. As such, the certification process is potentially noisy, albeit with green firms more likely to pass than brown firms. While it is likely to increase the fraction of green units in the market, the introduction of eco-labeling can either increase or decrease welfare. In addition, expected profits earned by green sellers are likely to be more variable in an equilibrium with certification. The paper provides some casual empirical evidence from Latin American coffee markets as a backdrop to the theoretical results.

Suggested Citation

  • Mason Charles F, 2009. "Certification of Socially Responsible Behavior: Eco-Labels and Fair-Trade Coffee," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 7(2), pages 1-21, December.
  • Handle: RePEc:bpj:bjafio:v:7:y:2009:i:2:n:2

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    References listed on IDEAS

    1. Xiaodong Du & David A. Hennessy & William M. Edwards, 2007. "Determinants of Iowa Cropland Cash Rental Rates: Testing Ricardian Rent Theory," Center for Agricultural and Rural Development (CARD) Publications 07-wp454, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Sergio H. Lence & Ashok K. Mishra, 2003. "The Impacts of Different Farm Programs on Cash Rents," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(3), pages 753-761.
    3. Yoder, Jonathan & Hossain, Ishrat & Epplin, Francis & Doye, Damona, 2008. "Contract duration and the division of labor in agricultural land leases," Journal of Economic Behavior & Organization, Elsevier, vol. 65(3-4), pages 714-733, March.
    4. Lyubov A. Kurkalova & Christopher Burkart & Silvia Secchi, 2004. "Cropland Cash Rental Rates in the Upper Mississippi River Basin," Center for Agricultural and Rural Development (CARD) Publications 04-tr47, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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    Cited by:

    1. Ynte Dam & Janneke Jonge, 2015. "The Positive Side of Negative Labelling," Journal of Consumer Policy, Springer, vol. 38(1), pages 19-38, March.
    2. Alexander W. Cappelen & Tone Ognedal, 2017. "Certification and socially responsible production," Economics of Governance, Springer, vol. 18(1), pages 71-84, February.

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