Abstract:
Honor and stigma play a role in environmental protection. Environmental honors are bestowed on
people and firms who go out of their way to do right by the environment. Similarly, environmental
stigma is put on people or firms who are publicly taken to task for their poor environmental record. We
design a voluntary incentive mechanism by incorporating honor and stigma to induce heterogeneous
firms to protect the environment at less cost. We encounter a motivational costs incurred by the green
firm-it loses its leadership rents. Our result suggests (i) an additional social reward is needed for a
green firm; and (ii) the brown firm may sacrifice information rent.
