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)
This paper investigates the trade-off between audit rigor and participation in voluntary certification with multiple certifiers. For many certification schemes, firms choose among multiple certifiers that verify compliance for the same label. I build an empirical model of such certification and estimate it with novel panel data on the Forest Stewardship Council’s certification of sustainable wood production. I measure certifiers’ rigor differences based on variation in audit results across certifiers and the likelihood that certifiers are inspected. I show that firms are willing to pay considerably more for more lenient certifiers than rigorous ones. Using the estimated model, I simulate the effects increasing the minimum level of rigor would have as long as price premia for certification do not adapt. Drops in firms’ participation counteract the positive effects on compliance among the certified. For moderate changes, I predict a positive effect on total welfare and compliance among all previously certified forests. That effect comes at an increasing cost for forest firms and certifiers. I, therefore, simulate the typical way of enforcing minimum rigor levels: by suspending the market access of more lenient certifiers. I predict suspensions lead to higher compliance spikes among the certified but also a more substantial drop in participation than equivalent rigor increases. Overall, the effects of suspensions are more favorable for marginal changes and worse but still positive for larger changes.
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.
WORK IN PROGRESS
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)
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)