Events & Media: Laura Grant PhD Defense

The Bren School of Environmental Science & Management
at the University of California, Santa Barbara

Presents

A PhD Dissertation Defense

Laura Grant

Tuesday, June 14, 2011
10:00 AM
Bren Hall Oak Room (1520)

"Three Essays on Information and the Private Provision of Public Goods"

Faculty Advisor: Matthew Kotchen
Committee Members: Charlie Kolstad, Doug Steigerwald

 

Abstract
Although there is increasing use of eco-labeling, conditions under which eco-labels can command price premiums are not fully understood. The first chapter demonstrates that the certification of environmental practices by a third party should be analyzed as a strategy distinct from—although related to—the disclosure of the eco-certification through a label posted on the product. By assessing eco-labeling and eco-certification strategies separately, researchers can identify benefits associated with the certification process, such as improved reputation in the industry or increased product quality, independently from those associated with the actual label. In the context of the wine industry, this research shows that eco-certification leads to a price premium while the use of the eco-label does not.

In the other two chapters, I study information and contributions to charities, organizations that often supply public goods. The quality of goods and services produced by charities is heterogeneous, is essentially unknown to donors, and is costly or prohibitive to verify. Third-parties provide standardized ratings, frequently based on finances, to diminish the asymmetric information. By assessing one such ratings agency and data from the 5,400 rated charities, the second chapter isolates the effects of ratings on donations in two dimensions. I estimate a higher star-rating, from 0-stars to 4-stars, significantly increases contributions. However, charities receive fewer contributions after being rated than before, from a negligible amount for 4-star charities to a 25% cut for 0-star charities. The results provide market-based valuation for the ratings of public goods providers. Moreover, the estimates suggest that higher financial quality is expected of charities, because voluntary giving to rated organizations decreases by $1 billion annually.

With ratings increasingly available, concerns arise about behavioral responses of those rated. In the last chapter, I consider how third-party ratings affect the decisions of rated charities, and consequently, overall giving. From a charity's perspective, fundraising expenses increase contributions, but the expense in doing so hurts ratings. I develop a theoretical model of this trade-off, demonstrating a rated charity will reduce fundraising regardless of its rating, relative to being unrated. The data confirms that fundraising expenses decline, which cause losses in contributions and account for most of the ratings effects on giving. Furthermore, substituting the estimated parameters into the theoretical model implies the decreases are disproportionately large and charities could earn more in contributions without damaging ratings. These results have implications for interpreting the effectiveness of third-party ratings, for designing ratings, and for improving the supply of public goods and services.