Advertising, ecolabeling and consumers’ beliefs: Greenwashing or not?

Abstract

When information provided by ecolabels is inaccurate and consumers have ambiguous beliefs about the quality of green products, firms can use their advertising strategy in two ways: by informing consumers of the true quality of green goods in order to increase their belief accuracy, or by overstating their true quality to mislead consumers. We show that firms’ advertising strategies, which are either informative and/or persuasive, are used to influence consumers’ degrees of optimism and confidence. We find conditions under which advertising tools are used together (or not), and provide new conceptual insights about “greenwashing”. Furthermore, we analyze how ecolabel stringency impacts “greenwashing” and affects social welfare and average environmental quality.