Green, greener, greenest: Eco-label gradation and competition

This paper analyzes two common features of markets in which eco-label programs certify that products are “green”: gradation—single programs offering multiple certification standards (e.g., platinum, gold, silver)—and competition—multiple programs vying to certify to their respective standards. We find that, depending on whether programs are sponsored by industry, environmental groups, or a government, they have strikingly different incentives to grade or compete. Industry sponsors are indifferent about both; environmentalist sponsors optimally grade or compete with other environmentalist sponsors only if consumer preferences for green consumption are skewed in a specific way; and government sponsors׳ decisions depend on the relative importance of private vs. public benefits generated by the green market. We find also that it is no accident that green markets frequently have an environmentalist program competing with an industry one. For each of the cases examined, our analysis is consistent with casual empirical evidence.