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Certification and socially responsible production
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Certification and socially responsible production

Author

Listed:
  • Alexander W. Cappelen

    (NHH Norwegian School of Economics)

  • Tone Ognedal

    (University of Oslo)

Abstract

In many markets, consumers are unable to distinguish between goods that are produced in a socially responsible way and goods that are not. In such situations, socially responsible production is not a profit-maximizing strategy, even if the premium that consumers are willing to pay exceeds the costs. Only firms that are genuinely motivated by social responsibility would then produce in this way, and there would be too little socially responsible production. Improved opportunities for voluntary certification could potentially reduce this problem by allowing firms to signal their type. We examine how the possibility of certification affects the share of socially responsible production. Our main result is that increased certification may reduce the share of socially responsible production by reducing prices in the market for uncertified products and thus crowd out socially responsible producers who do not certify. This provide a mechanism through which certification might have adverse effects on socially responsible production, even when the certification process is perfect and when there is perfect competition among the producers.

Suggested Citation

  • Alexander W. Cappelen & Tone Ognedal, 2017. "Certification and socially responsible production," Economics of Governance, Springer, vol. 18(1), pages 71-84, February.
    • Handle: RePEc:spr:ecogov:v:18:y:2017:i:1:d:10.1007_s10101-016-0184-2
    DOI: 10.1007/s10101-016-0184-2
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    Cited by:

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    2. Walter, Jason M. & Chang, Yang-Ming, 2020. "Environmental policies and political feasibility: Eco-labels versus emission taxes," Economic Analysis and Policy, Elsevier, vol. 66(C), pages 194-206.

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    More about this item

    Keywords

    Social responsibility; Certification; Labeling; Ethical production;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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