Credence attributes, voluntary organizations, and social pressure

Abstract

Credence attributes of products are unobservable through search or experience. Some consumers are willing to pay a premium for their provision, and in addition, citizens can apply social pressure on firms to supply credence attributes. Firms have formed voluntary organizations to assure the provision of credence attributes, and the credible provision provides product differentiation. This paper provides a theory of the voluntary provision of credence attributes in the presence of demand pull from consumers and social pressure from NGOs, where an organization chooses a credence standard and firms compete given the standard. The credence standard is lower the larger the organization, and social pressure results in a higher standard.