Green Clubs

35 Pages Posted: 18 Dec 2010 Last revised: 7 Dec 2024

See all articles by Klaas van 't Veld

Klaas van 't Veld

University of Wyoming - Department of Economics

Matthew J. Kotchen

Yale University; National Bureau of Economic Research (NBER)

Date Written: December 2010

Abstract

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.

Suggested Citation

van 't Veld, Klaas and Kotchen, Matthew J., Green Clubs (December 2010). NBER Working Paper No. w16627, Available at SSRN: https://ssrn.com/abstract=1727106

Klaas Van 't Veld (Contact Author)

University of Wyoming - Department of Economics ( email )

College of Business Department 3985
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Laramie, WY Wyoming 82071
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+1 307-766-4028 (Fax)

HOME PAGE: http://www.uwyo.edu/economics/faculty-staff/faculty/klaas-t-vantveld.html

Matthew J. Kotchen

Yale University ( email )

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New Haven, CT CT 06520
United States

National Bureau of Economic Research (NBER) ( email )

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