Competing or Complementary Labels? Estimating Spillovers in Chinese Green Building Certification

Many markets have multiple voluntary certification programs that sellers use to signal product or organizational quality. Certification is a widely used tool for reducing information asymmetry between buyers and sellers when product quality is hard to assess, or when certain organizational behaviors are hidden. It is not clear though how voluntary certification programs serve the same market as complements or substitutes.

In a new working paper, Xia Li and Timothy Simcoe examine the spillover effects in the adoption of “competing” certification programs and propose a framework for understanding how such spillovers arise through three channels: suppliers, adopters and users of various labels.

The authors’ empirical analysis demonstrates these effects in the context of Chinese green-building certification. Specifically, they measure spillovers from adoption of the Chinese Green Building Evaluation Label (GBEL) to adoption of the alternative Leadership in Energy and Environmental Design (LEED) standard within the same region. To isolate the causal impact of GBEL on LEED adoption, Li and Simcoe use local government subsidies as an instrumental variable. They find evidence of market-level spillovers through the supplier and user channels, but little evidence of building-level scope economies.