The Efficacy of Private Voluntary Certification Schemes: A Governance Costs Approach

What are the conditions under which private, voluntary certification programs like the Rainforest Alliance or Fairtrade can successfully promote environmental and social standards? We propose that the efficacy of a certification program depends on three variables: its sustainability standards, enforcement mechanisms and its market proliferation. The stricter the standards, the better the enforcement systems and the bigger the market share, the higher will be the factual impact of a particular certification program. We develop an index to systematically compare the strengths of norms and enforcement systems across a selection of important certification schemes in the global coffee industry and collect data about their market shares. We use a qualitative comparative analysis (QCA) to analyze these data. Our results show: certification schemes with strict standards and enforcement systems possess only insignificant market shares. Certification schemes with more significant market shares have either loose standards and/or ineffective enforcement systems. We develop a governance costs approach to explain these findings. Stricter standards and enforcement systems lead to an increase of production costs. The extents to which these costs can be shifted to the market are limited. Certification schemes therefore have incentives to reduce these costs in order to increase their market shares. The results confirm that the capacity of voluntary governance schemes is systematically restricted.