The market for "harmful component-free" products under pressure from the NGOs

Dorothée Brécard (1) , Mireille Chiroleu-Assouline (2, 3)

1 LEAD - Laboratoire d'Économie Appliquée au Développement
2 PSE - Paris School of Economics
3 PJSE - Paris Jourdan Sciences Economiques

Non-governmental organizations (NGOs) are exerting growing pressure on firms to eliminate product components (such as palm oil) that are harmful to the environment (such as rainforests) or replace such components with NGO-certified sustainable components. Under which conditions does NGO pressure lead firms to eliminate basic components from their products or, alternatively, substitute damaging components with certified sustainable components? What are the ensuing effects on market structure, environmental quality, and social welfare? The paper addresses these issues using a model of two-dimensional vertical product differentiation. It shows that, for an NGO that collects certification fees to accrue its budget and finance its awareness campaign, it may — paradoxically — be optimal to reduce the certified product’s market share and eventually evict it.

Mots clés: Palm oil; Product differentiation; Biofuels; NGO; Eco-label; Environmental quality

Domaines: Economies et finances

Dorothée Brécard, Mireille Chiroleu-Assouline. The market for "harmful component-free" products under pressure from the NGOs. 2020. ⟨halshs-02878337⟩