CHOOSING AMONG COMPETING ENVIRONMENTAL AND LABOR STANDARDS: AN EXPLORATORY ANALYSIS OF PRODUCER ADOPTION 1

Abstract

There has been a proliferation of environmental and labor certifications, such as Fair Trade, Rainforest Alliance, and SA 8000. This phenomenon is observed in many industries, including coffee, tourism, apparel, aquaculture, and electronics. Although these programs can have important social and environmental impacts (especially in developing countries, where institutions are weak and governments often do not have enough resources to enforce regulation), the effects of having multiple certification programs competing in an industry are not yet understood. Certification programs have been studied as a mechanism for producers to communicate unobservable organizational attributes to exchange parties. Such signals convey information about a producer’s environmental and labor practices, allowing buyers/consumers to factor them into their purchasing decisions. Previous research on self-regulation has focused on whether firms adopt a single certification. This paper explores what happens in industries in which multiple environmental and labor certifications are available to producers. I extend our understanding of self-regulation by analyzing how managers choose among various certification programs with different characteristics and deployed via different strategies. The empirical context of this paper is the flower industry in Colombia and Ecuador, two of the most important flower growers in the world. I use a combination of fieldwork and quantitative analysis of a unique dataset on flower exporters in these two countries. This exploratory analysis suggests that signaling theory might not suffice to explain producers’ certification choice. Other characteristics, such as the certifying organizations’ promotion strategies and firms’ social connections, seem to influence producers’ decisions. Results suggest that industries with competing certification programs might face a “race to the bottom,” where certifying organizations decrease the stringency of their standard and focus their efforts on marketing in order to increase their adoption by firms. This unanticipated outcome is, in part, a result of consumers being unable to distinguish between the certifications in terms of quality.