Competing or complementary labels? Estimating spillovers in Chinese green building certification

Li, Xia and Simcoe, T (2021) Competing or complementary labels? Estimating spillovers in Chinese green building certification. Strategic Management Journal, 42 (13). pp. 2451-2476. ISSN 0143-2095

Abstract

Research summary

Many markets have multiple voluntary certification programs that sellers use to signal product or organizational quality. We argue that there can be positive spillovers in adoption of “competing” certifications and propose a framework for understanding how such spillovers arise through three channels: suppliers, adopters, and users of various labels. Our empirical analysis demonstrates these effects in the context of Chinese green-building certification. Specifically, we measure spillovers from adoption of the Chinese Green Building Evaluation Label (GBEL) to adoption of the alternative LEED standard within the same city. To isolate the causal impact of GBEL on LEED adoption, we use local government subsidies as an instrumental variable. We find evidence of market-level spillovers through the supplier and user channels, but little evidence of building-level scope economies.

Managerial summary

Many markets have several voluntary certification programs that sellers can use to signal product or organizational quality. Although many scholars emphasize the potential for competition between labels, we argue that there can be positive spillovers in adoption of “competing” certification schemes and propose a framework for understanding how those spillovers arise through three channels: suppliers, adopters, and audience. Managers of nascent certification programs can use this framework as a roadmap for attracting various stakeholder groups. We use our framework to analyze the diffusion of Chinese green-building labels and find evidence of large positive spillovers through the supplier and audience channels. These results suggest that the risks of tipping toward a single standard may be small in practice.