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Green Business and Blue Angels

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  • Stefanie Kirchhoff

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Abstract

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

Suggested Citation

  • Stefanie Kirchhoff, 2000. "Green Business and Blue Angels," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 15(4), pages 403-420, April.
  • Handle: RePEc:kap:enreec:v:15:y:2000:i:4:p:403-420
    DOI: 10.1023/A:1008303614250
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    References listed on IDEAS

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    3. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    4. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
    5. 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.
    6. 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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