Experimental Design
The design is the reproduction of the theoretical model in practical terms. There are two types of players, a seller and a buyer. The seller sells a good with or without credence attributes. Product type g is a green good, namely a good with the green credence attribute while type c is a conventional good without that attributes. The other product characteristics are identical. Only the seller possesses the information about the environmental performance of the good. Buyers cannot obtain the information on their own through experience or search.
The seller can choose the claim and consequently, the price to send to the buyer. The set of possible prices is reduced to two levels for simplicity: the price for a good with green claim Pg and the price of a conventional good Pc. If the conventional good has a false claim, its price is Pg which is strictly greater than Pc. On top of this, the seller can signal the quality of the product with a claim about the product’s sustainability. Adopting a signal costs D which is small and which is identical both for truthful and false claims.
By adopting a false signal, the seller incurs in the probability of being caught by an authority which with ϵ probability verifies the signal truthfulness and applies a fine f of a fixed and known amount.
Game procedure
At the beginning of the study, once the instructions have been read, the seller is exogenously given a product which can have a 50% probability of being green and 50% probability of being conventional. The seller knows the actual characteristics of the product displayed on the screen. In the same page, the seller decides whether to adopt a sustainability claim and incur cost D or not. The choice of the signal influences the price at which the good is sold: a good with the green claim is sold at price Pg; a good with no claim at Pc. The seller with the conventional product
has a binary choice between “Claim A” and “Claim B” where “Claim B” is the green (false) option. The seller with the green product instead can only choose ”Claim B” which is, in practice, true. Once the seller has made the decisions the so-called “market authority” randomly checks some of the product types and the claims adopted. The probability differs across treatments (see section 3. The authority verifies automatically
the coincidence between the claim and the product type with ϵ probability and applies a fine f if a green claim has been adopted on a conventional product. Simultaneously, in the case that a false claim is detected, the authority restores the correct price of the good Pc.
In the last stage, the buyer receives the product on his/her screen and elicits two decisions. Firstly, the buyer sees only the claim after possible authority checks and elicits their willingness to pay for the product. Secondly, the buyer is informed about the products’ market prices and decides whether to purchase the product or not by paying the relative price.
Once the buyer has taken both decisions, pairs are randomly shuffled and participants are informed that they might be matched with another partner in the next round.
The actual verification is not public knowledge: sellers discover about the sanctions received only at the end of the study, while buyers never discover that.