Abstract
Despite being regulated by truth-in-advertising laws, greenwashing continues to be a significant
issue, posing challenges to consumer protection and fair competition. Even with these regulations, difficulties in detection and inconsistent enforcement impede a solution to the problem. This paper explores greenwashing through a variation of a sender-receiver game, incorporating a random inspector responsible for detecting false claims. Using signalling theory, we predict the behaviour of sellers and buyers based on each other’s beliefs. We then test these predictions in a laboratory setting with real products and consequential purchasing decisions, examining how different detection probabilities influence greenwashing as well as consumption behaviour and beliefs. Not surprisingly, our findings indicate that enforcement primarily acts as a deterrent for sellers. Interestingly, buyers repeatedly purchase green products even when greenwashing is foreseen. Policymakers should address greenwashing differently depending on the weight they give to consumer surplus and environmental concerns.
issue, posing challenges to consumer protection and fair competition. Even with these regulations, difficulties in detection and inconsistent enforcement impede a solution to the problem. This paper explores greenwashing through a variation of a sender-receiver game, incorporating a random inspector responsible for detecting false claims. Using signalling theory, we predict the behaviour of sellers and buyers based on each other’s beliefs. We then test these predictions in a laboratory setting with real products and consequential purchasing decisions, examining how different detection probabilities influence greenwashing as well as consumption behaviour and beliefs. Not surprisingly, our findings indicate that enforcement primarily acts as a deterrent for sellers. Interestingly, buyers repeatedly purchase green products even when greenwashing is foreseen. Policymakers should address greenwashing differently depending on the weight they give to consumer surplus and environmental concerns.