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The Market for Ethical Goods

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  • Nicolas Bonneton

Abstract

This paper examines the unintended consequences of the rapid growth of markets for ethically labeled goods such as "organic" or "child-labor-free", using a model of voluntary labeling. On the supply and demand side, agents act based on their intrinsic motivation and monetary payoff. After a positive demand shock, the expected social and environmental attributes of both labeled and unlabeled goods deteriorate. As such, even if producing ethically labeled goods help mitigates externalities, it can be optimal for policymakers not to intervene and sometimes to tax these goods. Sorting in this market is non-trivial: under plausible conditions, only the most and least intrinsically motivated agents strategically position themselves in the ethical segment of the market

Suggested Citation

  • Nicolas Bonneton, 2023. "The Market for Ethical Goods," CRC TR 224 Discussion Paper Series crctr224_2023_426, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2023_426
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp426
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    More about this item

    Keywords

    corporate social responsibility; prosocial behavior; ethical labels; subsidy; organic;
    All these keywords.

    JEL classification:

    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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