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Bunching with the Stars: How Firms Respond to Environmental Certification

Author

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  • Sebastien Houde

    () (ETH Zurich, Switzerland)

Abstract

This paper shows that firms respond strategically to ENERGY STAR, a voluntary certification program for energy-efficient products. Firms offer products that bunch at the certification requirement, differentiate certified products in energy and non-energy dimensions, and charge a price premium on certified products. In the US refrigerator market, the magnitude of the price premium corresponds exactly to the average willingness to pay consumers have for certified products. This suggests that firms have the ability to extract most of the consumer surplus associated with certified products. If firms had to pay a fee to use the certification, a policy recently suggested, most of the cost should then be borne by consumers. I illustrate how such policy would impact the adoption of energy-efficient appliances.

Suggested Citation

  • Sebastien Houde, 2018. "Bunching with the Stars: How Firms Respond to Environmental Certification," CER-ETH Economics working paper series 18/292, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:18-292
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-18-292.pdf
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    Cited by:

    1. Bruno Lanz & Evert Reins, 2019. "Asymmetric information on the market for energy efficiency: Insights from the credence goods literature," IRENE Working Papers 19-03, IRENE Institute of Economic Research.

    More about this item

    Keywords

    environmental certification; firm behavior; energy efficiency; imperfect competition;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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