The Role of False-Claims Ban Regulation in Greenwashing of Firms with Imprecise Greenness Information

Zhengkai Wang, Debing Ni and Kaiming Zheng ()
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Zhengkai Wang: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China
Debing Ni: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, China
Kaiming Zheng: School of Logistics and Management Engineering, Yunnan University of Finance and Economics, Kunming 650221, China

Sustainability, 2022, vol. 14, issue 20, 1-25

Abstract: The observation that firms are greenwashing in their advertisements to consumers has attracted regulatory false claim concerns; thus, we built a three-stage game theoretical model to explore how a firm’s efficiency in greenness information acquisition and a false claims ban (FCB) regulatory policy induce greenwashing (non-greenwashing) in the green advertising market. We solved the model with the concept of the perfect Bayesian equilibrium. Based on the PBEs, we obtained the following results. (1) A FCB regulatory policy is necessary to rule out any intentional greenwashing PBE. (2) In the presence of a strict FCB regulatory policy (with a large enough FCB penalty), if the precision of the firm’s observed signals is lower (or higher) than a threshold, uninformative non-greenwashing (both unintentional and uninformative non-greenwashing) PBEs arise, and the threshold increases in the FCB penalty. (3) A strict FCB regulatory policy and a high level of efficiency (regarding the firm’s greenness information acquisition) can (together) rule out greenwashing; the threshold of the efficiency of the firm’s greenness information acquisition is independent of the regulatory policy. Managerial implications are also discussed.

Keywords: greenwashing; false claims ban; advertising; perfect Bayesian equilibrium (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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