An Analytical Approach to Greenwashing: Certification Versus Noncertification(“Yeşile Boyama” Kavramının Analitik İncelenmesi: Sertifikalı Etiketlerin Sertifikasızlarla Karşılaştırılması)

Abstract

“Greenwashing” – labeling products as environmentally sound while actually not – occurs when a firm eschews sustainable business practices but still wishes to enter environment-friendly markets. In response, environmentally conscious firms resort to eco-label certification to signal the authenticity of their products. Assuming that some consumers in the market are informed about product labeling while others are not, we study the problem of whether to certify one’s products using both a game-theoretic model and a profit-maximizing pricing model. In the game between a producer and multiple consumers, we find that the equilibrium solution is for the producer to pursue a segmentation strategy. We also find the optimal production policies in a demand setting and analyze the certification decision as a function of several parameters. Certification is superior in low price sensitive markets; when the informed-consumers market size is sufficiently large; and when the ratio of certification cost to production cost is not excessive.

Keywords

• Greenwashing
• Corporate Social Responsibility
• Sustainable Development