Johanna ISMAN will defend her thesis on Monday, February 19th at 3pm, Auditorium 6 & by ZOOM
Title: "Three essays on the economics of voluntary certification"
To attend the conference, please contact the secretariat Christelle Fotso Tatchum
- Emmanuelle Auriol : Professor of Economics, TSE, Supervisor
- Mathias Reynaert :Professor of Economics, TSE, President
- Julie Subervie : Senior Researcher INRAE/CEE-M, Rapporteure
- Eduardo Souza-Rodrigues, Associate professor, University of Toronto, Rapporteur
This thesis studies the economics of voluntary certification of quality that consumers and investors do not observe, so-called credence attributes. The first two chapters take an empirical approach, focussing on the certification of sustainable forest management in wood production, which aims at reducing negative externalities such as carbon emissions and biodiversity loss. The first chapter investigates how stricter enforcement of certification rules affects forest plots' participation and quality, here sustainability, when forest managers choose not only the standard and label but also one of competing certifiers. Those companies audit quality for the same label with potentially varying levels of rigor. Label owners enforce their standards by excluding excessively lenient certifiers. I build a structural model of such voluntary certification and estimate it with novel web-scraped and survey data on the Forest Stewardship Council's (FSC) standard for sustainable wood production. I find considerable differences in certifiers' levels of rigor and show that forest managers are willing to pay substantially more for relatively lenient certifiers. Counterfactuals reveal that increasing certifiers' minimum level of rigor raises quality in certified forests but reduces participation. That leads to a hump-shaped relationship between minimum rigor and aggregate quality in certified and uncertified forests. The results highlight a general limitation of voluntary certification. However, they also show FSC's scope to incentivize further reduction of negative externalities.
In the second chapter, my co-authors and I investigate if labels such as FSC's can motivate companies to reduce negative externalities even by restricting production volume. We study the impact of modifications made to the FSC standard in 2014 that attempted that. Specifically, we analyze the effects of the requirement to preserve a minimum of 80\% of forested areas in their natural state (called intact forest landscape or IFL) within certified forests. We study the effects on certification decisions and the conservation of IFL. To examine those, we link geographic information on forest concessions with remote sensing of the forest area, details about FSC certification, and audits in countries characterized by substantial areas of IFL. We use a difference-in-differences framework. Our findings reveal that in Russia, after the modification in the FSC standard, concessions with IFL were less inclined to get or remain FSC-certified compared to those lacking IFL. Additionally, we find indications that the change contributed to the conservation of IFL in certified forests. However, the drivers behind these improvements remain elusive, as our study does not uncover reductions in tree cover loss within the IFL.
The third chapter of the thesis uses game theory to study accreditation, i.e., the auditing and licensing of certifiers. Many countries and label owners establish accreditation bodies for that purpose. I analyze how the establishment and regulation of accreditation bodies affect certifiers' incentives for fraud and welfare. I provide motivating evidence based on increased certification after the international recognition of the Uruguayan accreditation body. I then analyze public-perfect equilibria in an infinitely repeated game of a mass of buyers, a monopolist supplier, a monopolist auditing company, and one or more accreditation bodies. I show that a necessary condition for a welfare-improving effect of accreditation bodies' existence is that buyers are sufficiently sophisticated or that accreditation is compulsory. The model highlights that accreditation bodies should not be profit-maximizing companies.