A significant number of consumers care about the environmental and social effects of production or claims to do so. It has been argued that consumers have the power to influence the way goods are produced through their purchasing choices. Products labelled as being, e.g., fair trade or organic allow consumers to express their preferences for production that is more socially responsible or more environmentally friendly. Thereby shoppers could “vote with their trolleys” and effectively influence the way production is organized. However, if consumption patterns are indicative of consumer preferences, consumers may tilt their purchasing behavior not only to convey information to producers but to influence how other consumers, friends, or even strangers think about them. Conspicuous consumption is well-documented for different markets and also relevant for environmentally friendly and fair trade consumption.
If consumer behavior is partly a form of private politics, but also driven by an interest in social image (or status) alone, several questions arise. First, how do these motivations interact and affect the market outcome? Second, under which conditions would the intended “voting with a trolley” lead to an efficient market outcome? As income is an important determinant of purchasing choices, in addition to preferences, the “voting” outcome in the market may for instance be tilted toward the preferences of richer individuals. Third, how do the effects of regulatory measures change if consumer behavior is expressive? In this task, we plan to address these questions and analyze how image or status concerns of consumers behavior influences strategic production decisions and how conventional regulatory instruments, such as minimum standards in production or taxes, work in such markets. Further, we intend to analyze how expressive consumer behavior affects production decisions and equilibrium prices if production conditions are unobservable and labels are awarded strategically. Both labelling behavior and consumer reactions to labels might be analyzed using experimental methods in addition to a theoretical analysis. The results should help better understand how credence goods markets work if preferences for production processes are heterogeneous and product images play a role.