Green Business and Blue Angels

Stefanie Kirchhoff ()

Environmental & Resource Economics, 2000, vol. 15, issue 4, 403-420

Abstract: This paper presents a model of a monopolist'svoluntary overcompliance with legal environmentalstandards under asymmetric information about thefirm's environmental impacts. The key assumptions are:the existence of quality premia for environmentalsoundness, a positive but imperfect degree ofmonitoring, and adaptive consumer expectations.Conditions necessary for overcompliance to arise in aprofit-maximizing equilibrium are derived. The effectsof a third-party eco-labeling system are analyzed. Itis shown that the existence of an independent labelingauthority increases the likelihood of overcomplianceto be profit-maximizing. Moreover, firms might have anincentive to lobby for the introduction of such asystem. The effect of consumers' risk preferences andan instrument for preventing ``Greenwash'' (companieslying about their environmental performance) is alsodiscussed. Copyright Kluwer Academic Publishers 2000

Keywords: asymmetric information; eco-labeling; environmental friendliness (search for similar items in EconPapers)
Date: 2000
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Citations: View citations in EconPapers (43)

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DOI: 10.1023/A:1008303614250

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