Auditor Leniency and Participation in Voluntary Forest Certification

(Job Market Paper. Earlier version presented as Firms’ willingness to pay for certification leniency: Evidence from the global wood industry)

Millions of firms seek voluntary certification to signal unobserved quality. This paper investigates how stricter enforcement of certification rules affects firms’ participation and quality. I build an empirical model of voluntary certification in which firms choose between competing certifiers. Those certifiers audit quality for the same label with varying levels of rigor. Label owners enforce their rules by excluding excessively lenient certifiers. I estimate the model 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 suggestive evidence that forest managers are willing to pay substantially more for relatively lenient certifiers. Counterfactuals show that increasing certifiers’ minimum level of rigor raises compliance with the certification rules and, thus, quality in certified forests. However, it reduces participation. That trade-off implies ambiguous effects on aggregate quality in certified and uncertified forests. Extreme increases in the minimum level of rigor might have adverse effects, highlighting a general limitation of voluntary certification. For moderate increases, the predicted effects are positive, suggesting that FSC can incentivize more preservation of biodiversity and the carbon stock than it has done so far.

The Effect of Accreditation Regulation on the Credibility of Credence Standards

Voluntary certification can mitigate market inefficiencies due to asymmetric information if certifiers are credible. Many countries establish accreditation bodies to monitor and license them. This paper theoretically analyses 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 certifier, 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 whenever buyers are naive. It shows that developing and small economies should establish their own national accreditation body only if they cannot find a foreign accreditation body of sufficiently high quality and sufficiently low transportation cost. These results are broadly in line with international practice. However, the model also suggests that developing economies likely need even higher quality accreditation bodies than advanced economies.


What are the Limits to Private Certification? Evidence from an Attempt to Protect Intact Forests

(joint with Kenneth Houngbedji, Maria Plakhtieva and Liam Wren-Lewis)

Voluntary certification schemes encourage companies to adopt production technologies that benefit society positively. However, whether these schemes can motivate companies to reduce negative externalities by restricting production volume is uncertain. Specifically, we study the impact of modifications made to the FSC standard that required the preservation of a minimum of 80% of so far undisturbed, intact forest landscapes (IFL) within certified forests. We analyse 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 characterised 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. However, the drivers behind these improvements remain elusive, as our study does not uncover reductions in tree cover loss within the IFL.

Export Taxes for Development? Evidence from the Ethiopian Leather Industry

(joint with Berihu Assefa, Emmanuelle Auriol, Gaelle Balineau, Nicolas Bonneton, Mulu Gebreeyesus and Kidanemariam Hailu)