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Top1. Introduction
Governments worldwide have endorsed the use of private regulations to manage the complexity of transnational trading relationships. These regulations rely on a coalition of non-governmental actors to add additional layers of rules and fill a gap in regulatory capability at the global level (Bartley, 2007, 2011; Mayer & Gereffi, 2010). This gap is a result of the reluctance of many governments to agree to binding transnational trade standards (Bartley, 2007). Private regulations offer a way to codify and monitor compliance of organizations with given safety, quality, social and environmental standards. Voluntary certifications, such as organic or Fairtrade, represent one particular type of private regulation that certifies the social and environmental conduct of companies. These certifications are based on voluntary mechanisms and rely on market dynamics - the interaction of companies, consumers and other stakeholders - for enforcing compliance (Mayer & Gereffi, 2010). Companies in turn use the certification to preserve their reputation, solicit trust from consumers, and achieve product differentiation advantage in the marketplace.
The number of certification schemes has expanded rapidly since 1990s (Bartley, 2011; Taylor, Murray, & Raynolds, 2005). For example, the eco-label index is currently tracking 463 eco labels worldwide in 25 industry sectors. On one hand, development of eco-labels provides consumers with more purchasing options. On the other hand, the rapid proliferation of certification schemes hinders the ability of consumers to comprehend the meaning behind each certification. The lack of understanding could influence market dynamics by complicating consumers’ purchasing decisions and providing opportunity for irresponsible companies to take advantage of consumer confusion. Survey by TerraChoice in 2010 conducted in 24 stores in the U.S. and Canada claimed that more than 95% of the 5,300 products being observed committed at least one sin of green-washing1 (Makower, 2010; Swain, 2011). The problem with green-washing is that it could lead to information asymmetry between consumers and companies by diluting the meaning of private regulation.
The situation outlined above has created policy challenges since governments can no longer solely rely on the market dynamics to enforce sound practices of private regulation. The effectiveness of private regulation to represent company’s true commitment toward social and environmental policy becomes questionable (Ramus & Montiel, 2005). As a result, several efforts are being undertaken to help consumers verify the accuracy of product information provided by private regulatory frameworks, including information about voluntary sustainable certifications. In the private sector, consumer advocates such as GoodGuide, Barcoo or NuVal, created web and mobile tools and applications to help consumers better understand the consequences of their purchases in the context of healthy and ethical consumption (Luna-Reyes et al., 2014). Watts &Weyner (2011) coined this type of applications and tools mobile technology-mediated ethical consumption (MTEC) tools (Watts & Wyner, 2011). In public domain, government entities, particularly in the U.S., have recently started promoting an information policy called smart disclosure to give consumers more control over their own data to make informed choices about their purchases (Sunstein, 2011).