Standard Uncertainty in Socially Responsible Labeling Schemes: A Product Market Experiment

Abstract This paper investigates standard uncertainty in socially responsible labeling schemes. Admist government incapabilities to alleviate negative externalities, corporate social responsibility has been called upon to assist in this mission. Labeling schemes are meant to allow consumers to identify which products promote social responsibility, but when labels are uncertain in the true amount of negative effect the product's production alleviates, they may perpeturate confusion amongst consumers and lose their effectiveness. We conducted a laboratory product market experiment to observe how the behavior of buyers and sellers changes and how welfare is affected when goods that are labeled to signal the social responsibility of the seller have clear standards or are ambiguous to the impact they have in alleviating a negative externality imposed on third-party participants.