Green Business and Blue Angels
This paper presents a model of a monopolist'svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm's environmental impacts. The key assumptions are:the existence of quality premia for environmentalsoundness, a positive but imperfect degree ofmonitoring, and adaptive consumer expectations.Conditions necessary for overcompliance to arise in aprofit-maximizing equilibrium are derived. The effectsof a third-party eco-labeling system are analyzed. Itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit-maximizing. Moreover, firms might have anincentive to lobby for the introduction of such asystem. The effect of consumers' risk preferences andan instrument for preventing ``Greenwash'' (companieslying about their environmental performance) is alsodiscussed. Copyright Kluwer Academic Publishers 2000
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Volume (Year): 15 (2000)
Issue (Month): 4 (April)
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References listed on IDEAS
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- Kaplow, Louis & Shavell, Steven, 1994.
"Optimal Law Enforcement with Self-Reporting of Behavior,"
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"Credence Goods and Fraudelent Experts,"
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The RAND Corporation, vol. 28(1), pages 107-119, Spring.
- Maloney, Michael T & McCormick, Robert E, 1982. "A Positive Theory of Environmental Quality Regulation," Journal of Law and Economics, University of Chicago Press, vol. 25(1), pages 99-123, April.
- Tomer, John F., 1992. "The human firm in the natural environment: a socio-economic analysis of its behavior," Ecological Economics, Elsevier, vol. 6(2), pages 119-138, October.
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