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Social Labeling by Competing NGOs: A Model with Multiple Issues and Entry

Author

Listed:
  • Anthony Heyes

    (Department of Economics, University of Ottawa, Ottawa, Ontario K1N 6N5, Canada)

  • Steve Martin

    (Department of Economics, University of Ottawa, Ottawa, Ontario K1N 6N5, Canada)

Abstract

In many settings firms rely on nongovernmental organizations (NGOs) to certify prosocial attributes embodied in their products. We provide a model of competition between NGOs in the provision of labeling services. Competition between a fixed number of NGOs features a “race to the top” in labeling standards, but entry of NGOs offering new labels pushes standards down. In a wide range of settings NGO entry and competition results in too many labels being adopted, with each label being too stringent. Compared to a setting in which firms can credibly communicate the social attributes of their products, labels demand greater prosocial behavior than is desired by firms, although with proliferation of the number of labels this discrepancy disappears. In contrast to existing models, firms may engage in excessive corporate social responsibility when they rely on an NGO as a certifying intermediary.

Suggested Citation

  • Anthony Heyes & Steve Martin, 2017. "Social Labeling by Competing NGOs: A Model with Multiple Issues and Entry," Management Science, INFORMS, vol. 63(6), pages 1800-1813, June.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:6:p:1800-1813
    DOI: 10.1287/mnsc.2015.2419
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    References listed on IDEAS

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