Competing Environmental Labels
We thank the U.S. EPA Science to Achieve Results (STAR) program (grant #RD–83285101) and Mistra Foundation's ENTWINED program for financial support, and Mark Bagnoli, the coeditor, two anonymous referees, and seminar audiences at the Alliance for Research on Corporate Sustainability, Duke University, EPA, the European Association for Environmental and Resource Economics, the Federal Trade Commission, the Haute Ecole Commerciale, Indiana University, INSEAD, the University of California at Santa Barbara, the University of Oregon, the University of Paris I, the World Congress of Environmental and Resource Economists, and Yale University for helpful comments.
We study markets in which consumers prefer green products but cannot determine the environmental quality of any given firm's product on their own. A nongovernmental organization (NGO) can establish a voluntary standard and label products that comply with it. Alternatively, industry can create its own standard and label. We compare the stringency of these two types of labels, and study their strategic interaction when they coexist. We find that even with error-free labels, environmental benefits may be smaller with two labels than with the NGO label alone, and we characterize when label competition is more likely to be environmentally beneficial.