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Green bond certification inflation under competition: Reputation free-riding and regulatory design

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  • Glavas, Dejan

Abstract

Green bond certification standards decline when investors learn from market outcomes. We show certifier competition exacerbates this inflation through reputation free-riding. Under oligopoly, each certifier bears full verification costs but captures only part of reputation benefits from reduced greenwashing. In a two-period model with investor learning, duopoly period-1 standards are about 57% of monopoly levels, and both periods’ standards are lower under competition. Mandatory minimum standards restore efficiency, with optimal floors increasing in competition intensity. These findings provide theoretical foundations for regulatory oversight in green bond certification markets.

Suggested Citation

  • Glavas, Dejan, 2026. "Green bond certification inflation under competition: Reputation free-riding and regulatory design," Economics Letters, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:ecolet:v:258:y:2026:i:c:s0165176525005920
    DOI: 10.1016/j.econlet.2025.112755
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    References listed on IDEAS

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    1. Shi, Xianwang & Ma, Jianteng & Jiang, Anxuan & Wei, Shuang & Yue, Leilei, 2023. "Green bonds: Green investments or greenwashing?," International Review of Financial Analysis, Elsevier, vol. 90(C).
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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