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Can mandatory certification promote greenwashing? A signaling approach
Author(s) -
Garrido Dolores,
EspínolaArredondo Ana,
MunozGarcia Felix
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12445
Subject(s) - certification , greenwashing , pooling , information transmission , signaling game , business , perception , product (mathematics) , marketing , microeconomics , affect (linguistics) , industrial organization , economics , public relations , management , computer science , computer network , linguistics , philosophy , geometry , mathematics , corporate social responsibility , artificial intelligence , neuroscience , political science , biology
This paper examines how positive or negative perceptions about innovation affect firms' strategic behavior when certifying their products. In particular, we consider two types of firm (innovative and noninnovative) which choose between three signals: (a) certified claim, (b) uncertified claim, and (c) no claim. The consumer, either exhibiting positive or negative perceptions, is uninformed about the firm's type and only observes the firm's claim. We find that a separating equilibrium arises in which information about the innovation is revealed to consumers. We also identify a pooling equilibrium in which both types of firm choose the same claim, concealing information from consumers. We show that regulation requiring mandatory certification can hinder information transmission. Our results also indicate that changes in product perceptions do not necessarily facilitate information transmission.