Why do firms choose to greenwash: an evolutionary analysis of greenwashing incentives and deterrents

With the increasing demand for sustainable products, greenwashing has become more prevalent and sophisticated over the past decade. To better understand the incentives for firms to greenwash, we develop an evolutionary game-theoretic model in which firms may choose to mimic green behavior without having to bear the cost linked to green investment and production. We provide the conditions for the different evolutionarily stable equilibria. In a second step, we extend the model using agent-based simulations to incorporate path-dependent investment/production costs, history-dependent mimicry effectiveness, peer effects, and localized firm interactions. We show that the simpler model with random matching offers good approximations of the equilibrium conditions in more complex setups, but market segmentation supports green investment and production in contrast to higher penalties. While curtailing opportunities to pretend green behavior boosts green production, we also find that increasing cost efficiencies encourage firms to engage in green production, even in the face of increasingly sophisticated deceptive strategies. Based on our results, we suggest trio-targeted policies that reduce the (initial) costs of green investment/production, curtail opportunities to mimic green behavior, and support segmentation.