This study determines the magnitude of the market signaling effect arising from Leadership in Energy and Environmental Design certification for green buildings and explores the mechanisms behind the signaling effect. Previous studies have shown that signaling or marketability plays an important role in the pursuit for Leadership in Energy and Environmental Design and equivalent green-building certification. By analyzing all new construction projects receiving Leadership in Energy and Environmental Design certification from 2000 to 2012 in the US, this study estimates the relative importance of ‘green’ signaling. This broad perspective using project-level data enables an analysis of some drivers of signaling and the pursuit of marketing benefits. The roles of local competition and market conditions, as well as municipal regulations are examined, especially as they differ between types of building owners (e.g., for-profit firms, governments, nonprofits). The results indicate that the non-building performance value—value captured by Leadership in Energy and Environmental Design signals above and beyond the specific building attributes that Leadership in Energy and Environmental Design certifies—dominates the attainment of Leadership in Energy and Environmental Design scores around certification tier thresholds. Further, strong evidence of spatial clustering of this non-building performance value for some owner types indicates that for-profit owners may be more responsive to local competition than non-profit owners. Local legislative mandates predict greater signaling intensity by government-owned buildings, as expected, but for-profit-owned projects tend to signal less, even after controls for local conditions. The results highlight the importance of local conditions, including peer effects and regulations, in driving non-building performance values across a wide range of green buildings.
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This assumption relies on the design of the LEED NC certification scheme, where thresholds are based on proportions of the base points available and that attained scores rely on a bundle of attributes that all positively contribute to environmental performance. This allows the construction of a signaling factor, which applies on average or in aggregate, although it cannot calculate signaling for a particular building (i.e., on a case-by-case basis).
Regulations are limited to municipal regulations for two reasons. First, the cross-sectional model would have no variation in national-level regulations. Second, local regulations are where there is the most variation in policies (Matisoff et al. 2016).
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The authors declare that they have no conflict of interest.
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Chiang Hsieh, L., Noonan, D. Strategic Behavior in Certifying Green Buildings: An Inquiry of the Non-building Performance Value. Environmental Management 60, 231–242 (2017). https://doi.org/10.1007/s00267-017-0869-5
- Non-building performance value
- Spatial clustering
- Local regulation