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Economics of Governance

, Volume 18, Issue 1, pp 71–84 | Cite as

Certification and socially responsible production

  • Alexander W. CappelenEmail author
  • Tone Ognedal
Original Paper

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.

Keywords

Social responsibility Certification Labeling Ethical production 

JEL Classification

Q5 M14 D82 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2016

Authors and Affiliations

  1. 1.NHH Norwegian School of EconomicsBergenNorway
  2. 2.University of OsloOsloNorway

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