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Eco‐labelling by a for‐profit certifier: Countervailing power and its consequences
Author(s) -
Barry Ibrahima,
Bonroy Olivier,
Garella Paolo G.
Publication year - 2017
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12286
Subject(s) - subsidy , labelling , incentive , certification , profit (economics) , bargaining power , business , industrial organization , welfare , economics , power (physics) , microeconomics , market economy , management , physics , criminology , quantum mechanics , sociology
For‐profit certifier's eco‐labelling is common in industries where firms have some “countervailing power” on sharing gains from labelling. We show that the certification standard for an environmental quality is lowered when firms have strong “power.” A certifier with too low bargaining power will prefer to sell to the best offer rather than bargain. This switch in the selling mechanism also thwarts his incentives in setting the standard. This is consequential for evaluating policies. The dimensions and even signs of welfare changes induced by taxes and subsidies depend upon the mechanism used, and ultimately upon firms’ countervailing power.