Saving Dolphins: Boycotts, Trade Sanctions, and Unobservable Technology

Consumers often boycott imported goods because they do not approve the way they are manufactured; e.g., using child labor or causing dolphin deaths. Without independent oversight firms must first resist the temptation to employ such modes of production and still convince consumers that they do not employ them. This paper develops a model in which a foreign monopolist uses the price to signal his technology choice in the presence of such moral hazard and adverse selection problems. We find that boycotts and indiscriminate tariffs are effective in addressing consumer concerns, but mandatory labeling of the products is not.