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This paper examines how positive or negative perceptions about innovation affect firms' strategic behavior when certifying their products. In particular, we consider two types of firm (innovative and noninnovative) which choose between three signals: (a) certified claim, (b) uncertified claim, and (c) no claim. The consumer, either exhibiting positive or negative perceptions, is uninformed about the firm's type and only observes the firm's claim. We find that a separating equilibrium arises in which information about the innovation is revealed to consumers. We also identify a pooling equilibrium in which both types of firm choose the same claim, concealing information from consumers. We show that regulation requiring mandatory certification can hinder information transmission. Our results also indicate that changes in product perceptions do not necessarily facilitate information transmission. 1 | INTRODUCTION Consumers' perceptions toward innovations are heterogeneous and usually differ to the average scientific opinion; see Messer, Costanigro, and Kaiser (2017). 1 Positive or negative perceptions 1 Funk et al. (2015) examine the discrepancies about scientific innovations between the U.S. citizens and experts of the American Association for the Advancement of Science (AAAS). For instance, 87% of experts from AAAS indicate that climate change is mostly a consequence of human activity, however, only half of the U.S. adults agree, and only 37% sustain it is a grave problem. With regard to genetically modified organisms (GMOs), 88% of the experts maintain that are safe, while only 37% of Americans believe that GMOs are safe. 6 Environmental certification costs (monetary fees and time) vary across programs, certifying agencies, and countries. For example, the minimum annual certification fee for the label supported by the non-GMO Project is approximately US$1,300, which can be considerably scaled-up as the number of verified products increase and additional services like inspectors are required. On average, the process can take from 3 to 6 months.

This paper examines countries’ free-riding incentives in international environmental agreements (IEAs) when, first, the treaty is non-enforceable, and, second, countries do not have complete information about other countries’ non-compliance cost. We analyze a signaling model whereby the country leading the negotiations of the international agreement can reveal its own non-compliance costs through the commitment level it signs in the IEA. Our results show that countries’ probability of joining the IEA is increasing in the free-riding benefits they can obtain from other countries’ compliance, and decreasing in the cost of not complying with the initial terms of the agreement. This paper shows that, when free-riding incentives are strong enough, there is no equilibrium in which all countries join the IEA. Despite not joining the IEA, however, countries invest in clean technologies. Finally, we relate our results with some common observations in international negotiations.

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