Green Clubs

Klaas van 't Veld, Matthew J. Kotchen

NBER Working Paper No. 16627
Issued in December 2010
NBER Program(s):Environment and Energy Economics, Public Economics

This paper treats programs in which firms voluntarily agree to meet environmental standards as "green clubs": clubs, because they provide non-rival but excludable reputation benefits to participating firms; green, because they also generate environmental public goods. The model illuminates a central tension between the congestion externality familiar from conventional club theory and the free-riding externality familiar from the theory on private provision of public goods. We compare three common program sponsors--governments, industry, and environmental groups. We find that if monitoring of the club standard is perfect, a government constrained from regulating club size may prefer to leave sponsorship to industry if public-good benefits are sufficiently low, or to environmentalists if public-good benefits are sufficiently high. If monitoring is imperfect, an important question is whether consumers can infer that a club is too large for its standard to be credible. If they can, then the government may deliberately choose an imperfect monitoring mechanism as a way of regulating club size indirectly. If they cannot, then this reinforces the government's preference for delegating sponsorship.

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Document Object Identifier (DOI): 10.3386/w16627

Published: van ‘ t Veld, K. and M. Kotchen, “Green Clubs,” Journal of Environmental Economics and Management , 62 (2011) 309 - 322. citation courtesy of

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