Working Paper: NBER ID: w16627
Authors: Klaas van T Veld; Matthew J Kotchen
Abstract: 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.
Keywords: ecocertification; green clubs; environmental policy
JEL Codes: D71; H41; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government sponsorship (H81) | club configurations (D71) |
| government sponsorship (H81) | social welfare outcomes (I38) |
| monitoring quality (L15) | club size (L83) |
| monitoring quality (L15) | credibility of standards (L15) |
| club size (L83) | credibility of standards (L15) |
| public good benefits (H41) | government sponsorship preference (H53) |