Inefficient NGO labels: Strategic proliferation and fragmentation in the market for certification

Anthony Heyes and Steve Martin

Journal of Economics & Management Strategy, 2018, vol. 27, issue 2, 206-220

Abstract: Nongovernmental organization (NGO) certification is a prerequisite for corporate engagement in enhanced social behaviors in many settings. Labels with broad scope (like “sustainability”) coexist with niche competitors much narrower in scope (like “bird‐friendliness”). When NGOs compete for adoptions, the wrong suite of schemes emerges, providing a rationale for regulation. An incumbent NGO may strategically narrow the breadth of its label to deter entry of competing schemes, reducing welfare. Even when entry is accommodated, welfare is compromised. Modeling multi‐issue competition between NGOs allows us to be the first to analyze label fragmentation and provide a novel perspective on proliferation that has frustrated practitioners.

Date: 2018
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