Abstract Voluntary Industry Standards : An Experimental Investigation of a Greek Gift by

Voluntary Industry Standards: An Experimental Investigation of a Greek Gift by Julia Schmid* One reason for firms to voluntarily increase their environmental or social production standards is to prevent consumers from lobbying for stricter mandatory standards. In this sense, voluntary overcompliance serves as a Greek gift, as consumers might be worse off in the end. Strategically, a Greek gift deteriorates the consumer’s incentive for lobbying and, as such, might be unkind. In many experiments it was shown that unkind actions which decrease the other’s payoff are punished by negative reciprocal behavior. This paper experimentally investigates whether negative reciprocity can also be observed if unkind behavior is not directed at payoffs but rather at a deterioration of strategic incentives. Keywords: experiments, voluntary agreements, overcompliance, learning, reciprocity JEL classification: C72, C92, D83 * E-mail: julia.schmid@wzb.eu. For helpful comments we thank Dorothea Kübler and the seminar participants at the Institute of Technology, Berlin. We are indebted to Wei Min Wang and Mark Henninger for programming the experiment and helping with its conduction, as well as to Jennifer Rontganger for her assistance. Financial support from the Deutsche Forschungsgemeinschaft (DFG) is gratefully acknowledged. In the European Union there is an ongoing debate on the labeling of foodstu¤s. The goal is to provide consumers with the most comprehensive information on the contents and the composition of food products. The background of this discussion is the increasing fraction of the population that is su¤ering from overweight and obesity. Consumer protection groups favor the implementation of tra¢ c light signpost-type labels that display the nutritional content of the respective product at the front of the pack using the easily recognizable colors red, amber and green. The colors provide information on the level (i.e. whether high, medium or low) of individual nutrients in the product like salt, fat and sugars. This system has already been partly introduced in the UK, and studies show that it helps consumers to judge the healthiness of products. The Confederation of the Food and Drink Industries of the EU (CIAA) however is strictly against the introduction of the tra¢ c light labeling system. Among other things it criticizes that this system is too much of a simpli cation. Instead, the food industry has developed its own labeling system, the Guideline Daily Amount (GDA). The CIAA recommends its members to provide the GDA information on their foodstu¤ packages, and indeed over 80% of the products are now labeled in this way. The outgoing president of the German Federation for Food Law and Food Sciences (BLL) can be quoted with a statement from April 2010, that the dedication [of the food industry] to the voluntary implementation of nutrition labeling has to be taken into account in the ongoing legislation debate in Brussels.1 In June 2010, the European Parliament voted against the statutory introduction of the tra¢ c light labeling system. Voluntary agreements (VA) such as the GDA labeling can be observed in many industrial contexts. Firms commit to voluntarily reduce emissions, invest in pollution abating technologies, provide certain quality standards, employ handicapped people or use inputs from environmentally friendly production. The motivations for this kind of behavior have been investigated theoretically and are manifold. Some are related to competition and market conditions. For example, rms increase the product di¤erentiation and thus market power by appearing "greener" or "more social" than their competitors (e.g. Arora and Cason (1995), Arora and Gangopadhyay (1995)), or they try to extract rents from consumers willing to pay a premium for environmental soundness, as analyzed for example in Kirchho¤ (2000). Another general driving force of overcompliance are strategic considerations. In Innes (2006) the rmscodes of conducts are being constrained due to the threat of a consumer boycott. Maxwell, Lyon, and Hackett (2000) present a similar argument in Translated quote: "Dieses Engagement zur freiwilligen Nährwertkennzeichnung muss im Rahmen der aktuellen Gesetzgebungsdebatte in Brüssel berücksichtigt werden. " Quoted from a press release in April 2010, see BLL (2010).