WHENAREPRIVATESTANDARDSMORESTRINGENT THANPUBLICSTANDARDS?

Retailers ’ private standards are increasingly important for addressing consumer concerns about safety, quality, and social and environmental issues. Empirical evidence shows that these private standards are frequently more stringent than their public counterparts. This article develops a political economy model that helps explain this stylized fact. We show that if producers exercise their political power to persuade the government to impose a lower public standard, retailers may apply their market power to install a private standard at a higher level than the public one, depending on several factors. Key words: private standards, public standards, political economy. JEL codes: D72, L15. Private standards, introduced by private companies, are increasingly prevalent on the global market (Henson and Hooker 2001; Henson 2004; Fulponi 2007). Indeed, retailers and producers introduce private standards in the same domains where the government imposes public standards, such as safety, qual-ity, and social and environmental aspects of production, retail, and consumption. Retailers and companies have a variety of motives for implementing private stan-dards. First, private standards may reduce consumers ’ uncertainty and information asymmetry about product characteristics such as safety, quality, and social and environmen-tal aspects, thus increasing consumer demand. For example, Kirchhoff (2000) shows that firms may voluntarily reduce pollution to attract “green ” consumers if firms are able to signal their pollution abatement, for example through a private standard. A similar argu-ment can be made for business-to-business Thijs Vandemoortele is an affiliated researcher at LICO