Labelling by a for-Profit Certifier

We analyze a for-profit certifier’s eco-labelling policies in industries where firms have some “countervailing power”. We show that the certification standard for an environmental quality is lowered when firms bargain over the certification fee. This result is explained by the firms obtaining a positive profit when they do not adopt the label (an outside option). Without “countervailing power” the certifier would be able to extract the whole surplus from the labeling firm and would set a higher standard for the environmental quality. Taxes and subsidies aimed to increase the latter also affect the fee and the standard; the final effect of these policies may be shown to be reversed by the “countervailing power”.