Environmental Certification, Consumer Greenness, and Greenwashing

Theresa Wittreich

Managerial and Decision Economics, 2025, vol. 46, issue 4, 2289-2313

Abstract: This paper investigates the welfare effects of imperfect environmental certification and its efficacy as an environmental policy tool within a partially covered product market and price competition among firms. Using a game‐theoretic model, I find that a truth‐revealing certification mechanism – that emerges for a sufficiently precise certification mechanism or high certification fee – can enhance welfare while consistently outperforming a pooling mechanism. While greenwashing cannot benefit the economy in price competition, it may have different implications in quantity competition. The study highlights that a truth‐revealing certification mechanism is crucial for effectively reducing environmental damage, offering valuable insights for policymakers.

Date: 2025
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https://doi.org/10.1002/mde.4452

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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:46:y:2025:i:4:p:2289-2313

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