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The Incidence of Coarse Certification: Evidence from the ENERGY STAR Program

Author

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  • Sebastien Houde

    (ETH Zurich, Switzerland)

Abstract
A coarse certification provides simple, but incomplete information about quality. Its main rationale is to help consumers trade off dimensions of quality that are complex and lack salience. In imperfectly competitive markets, it may induce excess bunching at the certification requirement, crowd out high quality, and facilitate price discrimination. Who will ultimately benefit from a coarse certification thus depends on the degree of market power firms can exercise as well as on consumers’ sophistication in responding to such information. This paper illustrates these insights using the ENERGY STAR certification program as a case study. I investigate the incidence of the program with a structural econometric model of the U.S. appliance market. I find that the certification can crowd out energy efficiency, make consumers worst off, and have small, but heterogenous impacts on firms’ profits. In this context, the certification tends to not be welfare-improving. This conclusion, however, crucially depends on the market environment and the design of the policy - in scenarios where energy prices are low, or the certification requirement is very stringent, the ES program can be welfare-improving.

Suggested Citation

  • Sebastien Houde, 2018. "The Incidence of Coarse Certification: Evidence from the ENERGY STAR Program," CER-ETH Economics working paper series 18/290, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:18-290
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-18-290.pdf
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    Citations

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    Cited by:

    1. Nano Barahona & Cristóbal Otero & Sebastián Otero, 2023. "Equilibrium Effects of Food Labeling Policies," Econometrica, Econometric Society, vol. 91(3), pages 839-868, May.
    2. Leard, Benjamin & Linn, Joshua & Springel, Katalin, 2023. "Vehicle Attribute Tradeoffs and the Distributional Effects of US Fuel Economy and Greenhouse Gas Emissions Standards," RFF Working Paper Series 23-04, Resources for the Future.

    More about this item

    Keywords

    Coarse certification; consumer attention; differentiated markets; structural estimation; energy efficiency;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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