This paper treats programs in which firms voluntarily agree to meet environmental standards as "green clubs": clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public goods. The model illuminates a central tension between the congestion externality familiar from conventional club theory and the free-riding externality familiar from the theory on private provision of public goods. We compare three common program sponsors--governments, industry, and environmental groups. We find that if monitoring of the club standard is perfect, a government constrained from regulating club size may prefer to leave sponsorship to industry if public-good benefits are sufficiently low, or to environmentalists if public-good benefits are sufficiently high. If monitoring is imperfect, an important question is whether consumers can infer that a club is too large for its standard to be credible. If they can, then the government may deliberately choose an imperfect monitoring mechanism as a way of regulating club size indirectly. If they cannot, then this reinforces the government's preference for delegating sponsorship.
|Date of creation:||Dec 2010|
|Date of revision:|
|Publication status:||published as van ‘ t Veld, K. and M. Kotchen, “Green Clubs,” Journal of Environmental Economics and Management , 62 (2011) 309 - 322.|
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- Aurora García-Gallego & Nikolaos Georgantzís, 2009. "Market Effects of Changes in Consumers' Social Responsibility," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(1), pages 235-262, 03.
- Roberto Rodríguez-Ibeas, 2007. "Environmental Product Differentiation and Environmental Awareness," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(2), pages 237-254, February.
- Graff Zivin Joshua & Small Arthur, 2005. "A Modigliani-Miller Theory of Altruistic Corporate Social Responsibility," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-21, May.
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