We investigate the environmental and economic benefits derived from the adoption of corporate sustainability practices.
Eco-labeling signals that a product has been eco-certified. While there is increasing use of eco-labeling practices, there is still little understanding of the conditions under which eco-labels can command price premiums.
In this paper, we argue that the certification of environmental practices by a third party should be analyzed as a strategy distinct from although related to the advertisement of the eco-certification through a label posted on the product.
By assessing eco-labeling and eco-certification strategies separately, we are able to identify benefits associated with the certification process independently from those associated with the actual label. More specifically, we argue in the context of the wine industry that eco-certification can provide benefits, such as improved reputation in the industry or increased product quality, which can lead to a price premium without the need to use the eco-label. We estimate this price premium of wine due to the eco-certification of grapes using 13,400 observations of wine price, quality rating, varietals, vintage, and number of bottles produced, for the period 1998-2005. Overall, certifying wine increases the price by 13%, yet including an eco-label reduces the price by 20%. This result confirms the negative connotation associated by consumers with organic wine. The price premium of this luxury good due to certification acts independently from its label, a confounding result not previously demonstrated by related literature.
Delmas, M. and Grant, L. Forthcoming. Eco-labeling Strategies and Price-Premium: The Wine Industry Puzzle. Business & Society
July 08 2008
Today, consumers have the opportunity to purchase a wide variety of environmentally friendly products that include; “green” foods, furniture, vehicles, buildings and electric power. The Toyota Prius stands out as one of the leading examples of this new trend. If consumers purchase such products, then this would encourage for profit firms to develop more of them. At a point in time, who buys these “green” products? More patient people will value the future energy savings from more efficient appliances. People are more likely to seek out “greener” durables when the price of energy inputs is high. Environmentalists are also more likely to purchase such products. This project uses GIS mapping technology and new data sets at the zip code level to provide new facts concerning the geographical distribution of who purchases green products. This project is joint research with Ryan Vaughn. Ryan is a graduate student in UCLA’s Economics Department.
Kahn, Matthew E. and Vaughn, Ryan K., Green Market Geography: The Spatial Clustering of Hybrid Vehicle and LEED Registered Buildings.
July 08 2008
Kahn is investigating the role that environmentalism plays in enacting regulatory barriers faced by real estate developers in California. Why do housing supply regulations differ across metropolitan areas and across communities within the same metropolitan area? One explanation focuses on the median voter’s narrow self interest. Home owners have a financial incentive to discourage new construction because it reduces the scarcity value of their asset. Richer communities may engage in fiscal zoning to keep the poor out. Minimum lot zoning reduces the likelihood that new entrants will be much poorer than incumbents. Communities may also enact housing supply regulation to preserve and enhance their local quality of life. Environmentalist communities are especially likely to pursue such goals. Environmentalists may seek to block local growth to preserve local public goods such as open space, bike paths and clean air and to preserve the character and culture of their community. By limiting housing growth, environmentalist communities minimize the likelihood that they suffer the downside of “sprawl”. At the same time that residential developers celebrate that their products help households achieve the “American Dream” at an affordable price, many environmentalists have countered that single family homes are wasteful and contribute to the destruction of natural capital and exacerbating climate change challenges.
Kahn, Matthew E., Environmentalism as a Determinant of Housing Supply Regulation.
April 08 2008